miss the target deadlines specified in the proposed amendment, because
any delays by the Participants could increase uncertainty for and,
potentially, impose additional costs on Industry Members.\131\ In
addition, the proposed amendments will increase transparency for
Industry Members by setting forth the circumstances under which the
full recovery of fees, costs, and expenses from Industry Members would
not be reasonable.
---------------------------------------------------------------------------

    \128\ See notes 66-68 supra.
    \129\ See note 68 supra.
    \130\ See notes 72-73 and associated text supra.
    \131\ See, e.g., Section IV.B. infra.
---------------------------------------------------------------------------

3. Identification of Post-Amendment Expenses in Submissions to the
Commission
    Under proposed Section 11.6(b), all CAT NMS Plan amendments
submitted by the Operating Committee to the Commission pursuant to Rule
608(b)(3)(i),\132\ and all filings submitted by the Participants to the
Commission under Section 19(b) of the Exchange Act,\133\ to establish
or implement Post-Amendment Industry Member Fees pursuant to Article XI
of the CAT NMS Plan, must clearly indicate whether such fees are
related to Post-Amendment Expenses incurred during Period 1, Period 2,
Period 3, or Period 4. Requiring the Participants to specify whether
any proposed fees are related to Post-Amendment Expenses, and the
Period to which they are related, will help the Commission to determine
whether it must consider the provisions of proposed Section 11.6 in
evaluating the proposed fees.
---------------------------------------------------------------------------

    \132\ 17 CFR 242.608(b)(3)(i).
    \133\ 15 U.S.C. 78s(b).
---------------------------------------------------------------------------

    The Commission requests comment on these proposed financial
accountability provisions. To the extent possible, please provide
specific data, analyses, or studies for support. The Commission
particularly solicits comment on the following issues:
    13. Is it appropriate for the Commission to apply the financial
accountability provisions of proposed Section 11.6 to Post-Amendment
Expenses? Why or why not? Should the financial accountability
provisions of proposed Section 11.6 be applied to fees, costs, or
expenses incurred by the Company in connection with the development,
implementation, and operation of the CAT, or to some other set of fees,
costs, or expenses? Why or why not? Would it be appropriate to limit
Section 11.6 to apply only to fees, costs, or expenses incurred by the
Company in connection with the development or implementation of the
CAT? Why or why not? Should the Commission further define what it means
to ``incur'' an expense? If so, how? Can the current definition of
``incurred'' in the proposing release be used to avoid the application
of proposed Section 11.6? If so, please explain and describe how the
Commission should address this.
    14. Is it appropriate for the Commission to tie CAT funding to the
achievement of Financial Accountability Milestones? Why or why not?
Please explain your response.
    15. With respect to Period 1:
    a. Is the proposed Financial Accountability Milestone of Initial
Industry Member Core Equity Reporting appropriate? Why or why not? What
other milestone should be used to end Period 1? Why?
    b. Is the definition of Initial Industry Member Core Equity
Reporting appropriate? Why or why not? Please explain your response.
    i. Should the definition of Initial Industry Member Core Equity
Reporting be amended to include additional types of reporting or data?
Should it be amended to remove some of the reporting or data
requirements currently identified? Why or why not? Please explain your
response.
    ii. If the definition is amended, should the target deadline for
Period 1 be amended? Why or why not? Please explain your response.
    c. Is the target deadline of April 30, 2020 appropriate? Why or why
not? What alternative deadline would be more appropriate? Why? Please
explain your response.
    16. With respect to Period 2:
    a. Is the proposed Financial Accountability Milestone of Full
Implementation of Core Equity Reporting Requirements appropriate?

Why or why not? What other milestone should be used to end Period 2?
Why? Please explain your response.
    b. Is the definition of Full Implementation of Core Equity
Reporting Requirements appropriate? Why or why not? Please explain your
response.
    i. Should the definition of Full Implementation of Core Equity
Reporting Requirements be amended to include other kinds of Industry
Member reporting or linkages? If so, which additional kinds of Industry
Member reporting or linkages should be included and why? Please explain
your response.
    ii. Should the definition of Full Implementation of Core Equity
Reporting Requirements be amended to reduce or strike the reporting
linkages requirement? If reduced, how should the requirements be
reduced? Why? Please explain your response.
    iii. Should the definition of Full Implementation of Core Equity
Reporting Requirements be amended to require a less stringent Error
Rate? If so, what should the Error Rate be and why? Please explain your
response.
    iv. Should the definition of Full Implementation of Core Equity
Reporting Requirements amend the requirement that the query tool
functionality required by Section 6.10(c)(i)(A) and Appendix D,
Sections 8.1.1-8.1.3 and Section 8.2.1 incorporates Industry Member
equities data or the requirement that the query tool functionality is
available to the Participants and the Commission? How should the
requirement be amended? Why? Please explain your response.
    v. If the definition is amended, should the target deadline for
Period 2 be amended? Why or why not? Please explain your response.
    c. Is the start date for Period 2 appropriate? Why or why not?
Please explain your response.
    d. Is the target deadline of December 31, 2020 appropriate? Why or
why not? What alternative deadline would be more appropriate? Why?
Please explain your response.
    17. With respect to Period 3:
    a. Is the proposed Financial Accountability Milestone of Full
Availability and Regulatory Utilization of Transactional Database
Functionality appropriate? Why or why not? What other milestone should
be used to end Period 3? Why? Please explain your response.
    b. Is the definition of Full Availability and Regulatory
Utilization of Transactional Database Functionality appropriate? Why or
why not? Please explain your response.
    i. Should the definition of Full Availability and Regulatory
Utilization of Transactional Database Functionality be amended to
require that the Commission must have approved a filing from FINRA to
retire OATS, as well as any filings from the Participants to remove
OATS-related provisions from their rules, or to remove the requirement
that OATS reporting is no longer required for new orders? Why or why
not? Please explain your response.
    ii. Should the definition of Full Implementation of Core Equity
Reporting Requirements be amended to include other kinds of Industry
Member reporting or linkages? If so, which additional kinds of Industry
Member reporting or linkages should be included and why? Please explain
your response.
    iii. Should the definition of Full Availability and Regulatory
Utilization of Transactional Database Functionality be amended to
require a less stringent Error Rate? If so, what should the Error Rate
be and why? Please explain your response. Should the Commission require
the Participants to demonstrate that Error Rates are stable? If so, how
would Participants do that? If the Participants are in compliance with
Appendix C, Section 3 of the CAT NMS Plan, would that sufficient? How
long should the Error Rate remain below the specified threshold in
order to be considered ``stable''?
    iv. Should the Commission amend the requirement that the query tool
functionality required by Section 6.10(c)(i)(A) and Appendix D,
Sections 8.1.1-8.1.3, Section 8.2.1, and Section 8.5 incorporates the
data required by conditions (b) and (c) or the requirement that the
query tool functionality is available to the Participants and the
Commission? How should the requirement be amended? Why? Please explain
your response.
    v. Should the Commission amend the requirement that the
requirements of Section 6.10(a) are met? How should the requirement be
amended? Why? Please explain your response.
    vi. If the definition is amended, should the target deadline for
Period 3 be amended? Why or why not? Please explain your response.
    c. Is the start date for Period 3 appropriate? Why or why not?
Please explain your response.
    d. Is the target deadline of December 31, 2020 appropriate? Why or
why not? What alternative deadline would be more appropriate? Why?
Please explain your response.
    e. Are there any conditions that the Commission should consider in
evaluating whether OATS can be retired? Please explain your response.
    18. With respect to Period 4:
    a. Is the proposed Financial Accountability Milestone of Full
Implementation of CAT NMS Plan Requirements appropriate? Why or why
not? What other milestone should be used to end Period 4? Why? Please
explain your response.
    b. Is the definition of Full Implementation of CAT NMS Plan
Requirements appropriate? Why or why not? Please explain your response.
    i. Is additional detail needed to describe the obligations of the
Participants under Rule 613 and the CAT NMS Plan? If so, why, and what
language would sufficiently describe these obligations? Please explain
your response.
    ii. If the definition is amended, should the target deadline for
Period 4 be amended? Why or why not? Please explain your response.
    c. Is the start date for Period 4 appropriate? Why or why not?
Please explain your response.
    d. Is the target deadline of December 30, 2022 appropriate? Why or
why not? What alternative deadline would be more appropriate? Why?
Please explain your response.
    19. Are the selected Financial Accountability Milestones
appropriate? If not, what other Financial Accountability Milestones
should be included?
    20. Is it appropriate for the Commission to permit the Participants
to submit updated, interim or addendum Quarterly Progress Reports for
completed Financial Accountability Milestones? Why or why not? What
information should be required in these interim or addendum Quarterly
Progress Reports so that the Commission can rely on such reports?
Should the Participants only be able to submit interim or addendum
Quarterly Progress Reports in connection with certain Financial
Accountability Milestones? If so, which ones? Please explain your
response.
    21. Is it appropriate to end the application of proposed Section
11.6 once Full Implementation of CAT NMS Requirements has been
achieved? Why or why not? Please explain your response.
    22. Should the Commission establish more than 4 Periods and/or use
more than 4 Financial Accountability Milestones? If so, how many
Periods should the Commission establish? What should the other
Financial Accountability Milestones be? Why? Please explain your
response.
    23. Should the Commission establish fewer than 4 Periods and/or use
fewer Financial Accountability Milestones? If so, how many Periods
should the

Commission establish? What milestones should be removed, or how should
the existing milestones be edited? Please explain your response.
    24. Is it appropriate for the Commission to incrementally reduce
the amount of Post-Amendment Industry Member Fees that the Participants
may recover if they miss the target deadlines specified in Period 1,
Period 2, Period 3, or Period 4? Why or why not? Would a different
percentage of recovery be more appropriate if target deadlines are
missed? If so, what percentage and on what schedule? Why? Is it
appropriate for the Commission to use different recovery schedules for
Period 1 and for Periods 2-4? Why or why not? Should a different
recovery schedule be used for Period 1? If so, how should the recovery
schedule be amended? Why? Please explain your response.
    25. Is it appropriate that the Participants may only collect Post-
Amendment Industry Member Fees at the end of Period 1, Period 2, Period
3, or Period 4? Why or why not? If not, at what other point(s) should
the Participants be able to collect these fees, and how would the
Commission determine whether and how the provisions of Section 11.6
apply? Please explain your response.
    26. Do commenters believe that the proposed incentives will
motivate the Participants to implement the CAT in an expeditious and
efficient manner? Why or why not? Would an alternative methodology be
more effective? If so, please describe this methodology and explain why
it would be more effective.
    27. Is it appropriate for the Commission to require the Operating
Committee or the Participants to clearly label any CAT NMS Plan
amendments or fee filings submitted to establish or implement Post-
Amendment Industry Member Fees to indicate whether such fees are
related to Post-Amendment Expenses incurred during Period 1, Period 2,
Period 3, or Period 4? Why or why not? If not, how would the Commission
determine whether and how the provisions of Section 11.6 apply? Please
explain your response.
    28. Should the Commission require the Participants to provide an
independent audit of the fees, costs, and expenses incurred from the
effective date of this proposed amendment? Why or why not?

III. Paperwork Reduction Act

    Certain provisions of the proposed rule contain ``collection of
information requirements'' within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\134\ The Commission is submitting
these collections of information to the Office of Management and Budget
(``OMB'') for review in accordance with 44 U.S.C. 3507(d) and 5 CFR
1320.11.\135\ An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless the agency
displays a currently valid control number.\136\ The title of the new
collection of information is ``CAT NMS Plan Reports.''
---------------------------------------------------------------------------

    \134\ 44 U.S.C. 3501 et seq.
    \135\ 44 U.S.C. 3507; 5 CFR 1320.11.
    \136\ 5 CFR 1320.11(l).
---------------------------------------------------------------------------

A. Summary of Collection of Information

    The proposed amendment would require two new categories of
information collection: (1) The Implementation Plan and (2) the
Quarterly Progress Reports.\137\ These categories are described more
fully below.
---------------------------------------------------------------------------

    \137\ The proposed amendment also requires the Participants to
include certain information in certain CAT NMS Plan amendments
submitted by the Operating Committee to the Commission pursuant to
Rule 608(b)(3) and all filings submitted by the Participants to the
Commission under Section 19(b) of the Exchange Act to establish or
implement Post-Amendment Industry Member Fees. However, the
Commission does not expect the baseline number of CAT NMS Plan
amendments or Section 19(b) filings, or the burdens associated with
these submissions, to increase as a result of the proposed
amendment. The Commission therefore believes that these burdens are
already accounted for in the Paperwork Reduction Act Information
Collection submissions for Form 19b-4 and Rule 11Aa3-2. See OMB
Control No. 3235-0045 (Aug. 19, 2016), 81 FR 57946 (Aug. 24, 2016)
(Request to OMB for Extension of Rule 19b-4 and Form 19b-4 PRA); OMB
Control No. 3235-0500 (December 22, 2004), 70 FR 929 (January 5,
2005) (Proposed Collection for Rule 11Aa3-2 and Request for
Comment).
---------------------------------------------------------------------------

1. Implementation Plan
    Proposed Section 6.6(c)(i) would require the Participants, within
30 calendar days following the effective date of this amendment, to
file with the Commission and make publicly available on a website a
complete Implementation Plan that includes the Participants' timeline
for achieving Implementation Milestones setting forth how and when the
Participants will facilitate the achievement of Full Implementation of
CAT NMS Plan Requirements. Under proposed Section 6.6(c)(iii), the
Operating Committee shall be required to submit the Implementation Plan
to the CEO, President, or an equivalently situated senior officer of
each Participant. A Supermajority Vote of the Operating Committee shall
then be required to approve the Implementation Report. However, if the
Implementation Plan is approved only by a Supermajority Vote of the
Operating Committee, and not by a unanimous vote of the Operating
Committee, each Participant whose Operating Committee member did not
vote to approve the Implementation Plan shall separately file with the
Commission and make publicly available on a website a statement
identifying itself and explaining why the member did not vote to
approve the Implementation Plan.
2. Quarterly Progress Reports
    Proposed Section 6.6(c)(ii) would further require the Participants,
within 15 business days after the end of each calendar quarter, to file
with the Commission and make publicly available on a website a complete
Report that provides a detailed description of the progress made by the
Participants towards each of the Implementation Milestones. The
Participants must provide specified information regarding
Implementation Milestones that have been completed, Implementation
Milestones that are in progress, and Implementation Milestones that
have not yet been initiated, such as updated information on currently
targeted completion dates and descriptions of the current status of the
Implementation Milestone, any adjustments to the targeted completion
date, and supporting information demonstrating the current level of
completion. Under proposed Section 6.6(c)(iii), the Operating Committee
shall be required to submit each Quarterly Progress Report to the CEO,
President, or an equivalently situated senior officer of each
Participant. A Supermajority Vote of the Operating Committee shall be
required to approve each Quarterly Progress Report. However, if a
Quarterly Progress Report is approved only by a Supermajority Vote of
the Operating Committee, and not by a unanimous vote of the Operating
Committee, each Participant whose Operating Committee member did not
vote to approve that Quarterly Progress Report shall separately file
with the Commission and make publicly available on a website a
statement identifying itself and explaining why the member did not vote
to approve the Report.

B. Proposed Use of Information

1. Implementation Plan
    The Commission believes that the publication of the proposed
Implementation Plan will make available critical information to the
Commission, other regulators, and market participants regarding the

intended goals and deadlines of the Participants. Access to this
information will help the Commission and market participants to monitor
the progress of CAT implementation, thereby reducing uncertainty
surrounding this process. The Commission also anticipates that
requiring the Participants to make public target dates submitted to
senior management of each Participant and approved by a Supermajority
Vote of the Operating Committee in the Implementation Plan will
increase the Participants' accountability to their intended timeline.
In addition, the Commission believes that requiring any Participants
whose Operating Committee members do not vote to approve the
Implementation Plan to disclose the basis for that decision may aid the
Commission and the public to better monitor the progress of CAT
implementation, because such an explanation may reveal critical
information regarding whether currently targeted completion dates are
realistic, whether milestones are being or have been completed in
accordance with the requirements of the CAT NMS Plan, and/or whether
potential risks or delays may impede the progress of CAT
implementation.
2. Quarterly Progress Reports
    The Commission believes that the publication of the proposed
Quarterly Progress Reports will make available critical information to
the Commission, other regulators, and market participants regarding the
intended goals and deadlines of the Participants. Access to this
information will help the Commission and market participants to monitor
the progress of CAT implementation. The Commission also anticipates
that requiring the Participants to make public their accomplishments in
the Quarterly Progress Reports will keep the Participants accountable
to their intended timeline. Finally, the Commission expects that the
provision of updated quarterly information in a Report, submitted to
senior management of each Participant and approved by a Supermajority
Vote of the Operating Committee, regarding the Participants' progress
towards CAT implementation, as well as any explanatory statements by
Participants whose Operating Committee members do not vote to approve
the Report, may reduce uncertainty regarding CAT's implementation
deadlines and flag any concerns regarding the implementation process
for the Commission and market participants.

C. Respondents

    The respondents to all collections of information would be the
Participants.

D. Total Initial and Annual Reporting and Recordkeeping Burdens

    The estimated burdens associated with the proposed amendments are
described fully below, but the below table briefly summarizes the
relevant burdens set forth in this Proposing Release.

----------------------------------------------------------------------------------------------------------------
                                                                 Annual ongoing burden     One-time burden per
                           Category                             per participant (burden    participant (burden
                                                                 hours/external costs)    hours/external costs)
----------------------------------------------------------------------------------------------------------------
Implementation Plan...........................................                      N/A           76.8/$8,695.65
Quarterly Progress Reports....................................         307.2/$34,782.60                      N/A
----------------------------------------------------------------------------------------------------------------

1. Implementation Plan
    The Commission preliminarily believes that each Participant will
incur, on average, a one-time burden of approximately 57.2 hours to
confer with other Participants, to draft an Implementation Plan, and to
vote as to whether to approve the Implementation Plan, as required by
proposed Section 6.6(c)(iii). In the CAT NMS Plan Approval Order, the
Commission noted that the Participants had estimated that approximately
20 full-time employees took approximately 30 months to develop the CAT
NMS Plan, including ``staff time contributed by each Participant to,
among other things, determine the technological requirements for the
Central Repository, develop the RFP, evaluate Bids received, design and
collect the data necessary to evaluate costs and other economic
impacts, meet with Industry Members to solicit feedback, and complete
the CAT NMS Plan submitted to the Commission for consideration.'' \138\
The Commission then used this information to estimate that the
development of the CAT NMS Plan would require, in aggregate, 14,407
burden hours for 12 months.\139\
---------------------------------------------------------------------------

    \138\ See CAT NMS Plan Approval Order, supra note 4, at n.3285.
    \139\ See id.
---------------------------------------------------------------------------

    This estimate, based on information provided by the Participants
about the burdens they actually incurred in developing a related
project, reflects the best data available to the Commission in
estimating the number of initial burden hours required to develop the
Implementation Plan. The Commission notes that developing the CAT NMS
Plan was a far more complex project than the development of the
Implementation Plan and that the burdens incurred in developing the CAT
NMS Plan may be different in nature than the costs that the
Participants would incur in developing the Implementation Plan. In this
instance, for example, the Participants will only have 30 calendar days
from the effective date of this amendment to prepare the Implementation
Plan, and the Participants have already created a Master Plan that
contains much of the information required by proposed Section
6.6(c)(i). In addition, the Commission believes that the Participants
should already have gathered much of the information needed to create
the Implementation Plan.\140\ For these reasons, the Commission
preliminarily believes that the estimated burden for preparing the
Implementation Plan should be one-twelfth the amount of the burden
estimated for the development of the CAT NMS Plan,\141\ or, on average,
52.2 initial, one-time burden hours for each Participant.\142\
---------------------------------------------------------------------------

    \140\ See, e.g., note 53 supra.
    \141\ Because the proposed amendment gives the Participants
approximately one month to prepare and publish the Implementation
Plan, the Commission has preliminarily used an estimate that mirrors
the one-month burden that was incurred by the Participants in
developing the CAT NMS Plan.
    \142\ 14,407 CAT NMS Plan burden hours / 12 months = 1,200.6
burden hours for all Participants. 1,200.6 aggregate burden hours /
23 Participants = 52.2 burden hours per Participant for the
Implementation Plan. The Commission preliminarily estimates that
each Participant will spend, on average, 52.2 internal burden hours
= (Attorney at 7 hours) + (Systems Analyst at 22.6 hours) +
(Compliance Manager at 22.6 hours). As discussed further in Section
IV.C., all estimates in this section represent an average; the
Commission expects that some Participants may incur greater costs
and some lesser costs due to variances in economies of scale for
Participants who share a common corporate parent. See note 217
infra.
---------------------------------------------------------------------------

    In addition, the Commission estimates that it will take each
Participant approximately 10 hours, on average, for

its member of the Operating Committee to ensure that the Operating
Committee submits the Implementation Plan to the CEO, President, or
equivalently situated senior officer of each Participant, for each
Participant to review the information contained in the Implementation
Plan and for senior management consultations as needed, and to vote on
approving the Implementation Plan.\143\ The Commission expects each
member of the Operating Committee to be familiar with the process of
CAT implementation, which should ease the task of determining whether
to vote in favor of the Implementation Plan. Accordingly, the
Commission estimates that each Participant will incur, on average, a
one-time burden of 62.2 hours to prepare the Implementation Plan and to
vote as to whether to approve it,\144\ for a one-time aggregate burden
of approximately 1,430.6 hours.\145\
---------------------------------------------------------------------------

    \143\ For the purposes of the Paperwork Reduction Act, the
Commission is assuming that the member of the Operating Committee is
a Chief Regulatory Officer or a Chief Compliance Officer and will
spend 5 hours on these tasks. However, the Commission notes that
this task could be performed by any person designated by the
Participant to serve as its representative on the Operating
Committee. See Section 4.2(a) of the CAT NMS Plan. In addition, the
Commission estimates that senior management who receive the
Implementation Plan from the Operating Committee will spend 5 hours
in consultations, including with their member of the Operating
Committee regarding the Implementation Plan. Because one individual
may serve as the representative for multiple affiliated
Participants, the Commission expects that some Participants may
incur greater costs and some lesser costs due to variances in
economies of scale for Participants who share a common corporate
parent.
    \144\ 52.2 burden hours + 10 burden hours = 62.2 burden hours.
    \145\ 62.2 burden hours x 23 Participants = 1,430.6 burden
hours.
---------------------------------------------------------------------------

    If the Implementation Plan is approved only by a Supermajority
Vote, and not by a unanimous vote, the proposed amendments require each
Participant whose Operating Committee member did not vote to approve
the Implementation Plan to separately file with the Commission and make
available on a public website an explanatory statement identifying
itself and explaining why it did not vote to approve the Implementation
Plan.\146\ Because there are currently 23 Participants, an
Implementation Plan would need to be approved by at least 16 members of
the Operating Committee to satisfy the Supermajority Vote provisions of
the CAT NMS Plan.\147\ At maximum, then, only seven Participants would
file an explanatory statement in connection with an Implementation Plan
approved only by Supermajority Vote.\148\ The Commission preliminarily
estimates that each of the seven Participants submitting an explanatory
statement will incur, on average, an initial, one-time burden of 15
hours to draft such statement.\149\ When this aggregate burden is
averaged across all Participants, it amounts to approximately 4.6 hours
per Participant or 105 hours in aggregate.\150\
---------------------------------------------------------------------------

    \146\ For the purposes of the Paperwork Reduction Act, the
Commission is assuming that this task will be performed by a Chief
Regulatory Officer or a Chief Compliance Officer. See note 143
supra.
    \147\ 23 Participants x \2/3\ Participants = 15.33 Participants.
Section 1.1 of the CAT NMS Plan indicates that, ``if two-thirds of
all . . . members authorized to cast a vote is not a whole number
then that number shall be rounded up to the nearest whole number.''
    \148\ 23 Participants-16 Participants = 7 Participants.
    \149\ The Commission bases this estimate on a full-time
Compliance Manager and the Chief Regulatory Officer or Chief
Compliance Officer each spending 7.5 hours to prepare the
explanatory statement.
    \150\ 7 Participants * 15 burden hours = 105 burden hours in
aggregate. 105 burden hours / 23 Participants = 4.6 burden hours.
---------------------------------------------------------------------------

    Finally, the Commission estimates that each Participant will incur,
on average, a one-time burden of approximately 10 hours to ensure that
the Implementation Plan, and any explanatory statement (if applicable),
is filed with the Commission and made publicly available on a
website.\151\ The Commission therefore estimates an aggregate burden of
approximately 230 hours for the Participants to publicly post and
submit to the Commission the Implementation Plan.\152\
---------------------------------------------------------------------------

    \151\ The Commission bases this estimate on a full-time
Compliance Manager and Programmer Analyst each spending
approximately 5 hours, for a combined total of approximately 10
hours, to prepare and publicly post the relevant documents.
    \152\ 10 burden hours per Participant x 23 Participants = 230
burden hours.
---------------------------------------------------------------------------

    In total, therefore, the Commission estimates that each Participant
will incur, on average, a one-time burden of approximately 76.8 hours
\153\ and approximately 1,766.4 hours in aggregate to comply with the
provisions of the proposed amendments that relate to the Implementation
Plan.\154\
---------------------------------------------------------------------------

    \153\ 52.2 hours + 10 hours + 4.6 hours + 10 hours = 76.8 burden
hours.
    \154\ 76.8 hours x 23 Participants = 1,766.4 burden hours. See
Section IV.C. infra for a dollar cost estimate of this burden.
---------------------------------------------------------------------------

    The Commission further estimates that each Participant will expend
approximately $8,695.65, on average, in external public relations,
legal, and consulting costs related to the development of the
Implementation Plan. In the CAT NMS Plan Approval Order, the Commission
estimated, based on information provided by the Participants, that the
Participants had collectively spent approximately $2,400,000 in
preparation of the CAT NMS Plan on external public relations, legal,
and consulting costs.\155\ The Commission preliminarily believes that
the estimated burden for the Implementation Plan should be one-twelfth
the amount estimated for the development of the CAT NMS Plan, because
the Participants will only have 30 calendar days from the effective
date of this amendment to prepare the Implementation Plan and because
preparation of the Implementation Plan is a much less complex project.
Accordingly, the Commission estimates that the Participants will expend
approximately $200,000 in aggregate, and $8,695.65 per Participant, in
external public relations, legal, and consulting costs related to the
preparation of the Implementation Plan.\156\
---------------------------------------------------------------------------

    \155\ See CAT NMS Plan Approval Order, at n.3287, supra note 4.
    \156\ $2,400,000 CAT NMS Plan costs / 12 months = $200,000 for
all Participants. $200,000 / 23 Participants = $8,695.65 per
Participant for the Implementation Plan.
---------------------------------------------------------------------------

2. Quarterly Progress Reports
    The Commission preliminarily believes that each Participant will
incur, on average, an ongoing quarterly burden of approximately 62.2
hours to confer with other Participants, to draft a Quarterly Progress
Report, to ensure that the Operating Committee submits each Quarterly
Progress Report to the CEO, President, or equivalently situated senior
officer of each Participant, and to vote as to whether to approve each
Quarterly Progress Report, as required by proposed Section
6.6(c)(iii).\157\ This estimate is approximately the same as the burden
related to the development and approval of the Implementation Plan,
because the Quarterly Progress Reports require the Participants to
prepare a detailed description explaining, quantifying, and voting to
approve the description of their progress towards the Implementation
Milestones laid out in the Implementation Plan, including the impact
that any such progress might have on the target completion dates for
Implementation Milestones that have not yet been achieved. The
Commission believes this estimate is appropriate because the
Participants are likely already tracking some of the information
required to be included in the Quarterly Progress Reports.\158\
Accordingly, the Commission estimates, on average, an

ongoing quarterly burden of approximately 62.2 hours for each
Participant,\159\ an ongoing annual burden of approximately 248.8 hours
for each Participant,\160\ and an aggregate annual burden of
approximately 5,722.4 hours.\161\
---------------------------------------------------------------------------

    \157\ As discussed further in Section IV.C., all estimates in
this section represent an average; the Commission expects that some
exchanges may incur greater costs and some lesser costs due to
variances in economies of scale for Participants who share a common
corporate parent. See note 217 infra.
    \158\ See, e.g., note 53 supra.
    \159\ The Commission preliminarily estimates that each
Participant will spend, on average, 52.2 internal burden hours to
confer with other Participants and to compile the Quarterly Progress
Report = (Attorney at 7 hours) + (Systems Analyst at 22.6 hours) +
(Compliance Manager at 22.6 hours). In addition the Commission
preliminarily estimates, for the purposes of the Paperwork Reduction
Act, that the chief Compliance Officer or Chief Regulatory Officer
of each Participant will spend 5 hours, on average, to submit the
Quarterly Progress Report to the CEO, President, or equivalently
situated senior officer of each Participant, to review the
information contained in each Quarterly Progress Report and for
senior management consultations as needed, and to vote on approving
the Quarterly Progress Report. In addition, the Commission estimates
that the CEO, President, or equivalently situated senior officer of
each Participant will spend 5 hours in consultations, including with
their member of the Operating Committee regarding each Quarterly
Progress Report. 52.2 hours + 5 hours + 5 hours = 62.2 hours.
Because one individual may serve as the representative for multiple
affiliated Participants, the Commission expects that some
Participants may incur greater costs and some lesser costs due to
variances in economies of scale for Participants who share a common
corporate parent.
    \160\ 62.2 burden hours per Participant per Quarterly Progress
Report * 4 Quarterly Progress Reports = 248.8 annual burden hours
per Participant for the Quarterly Progress Reports.
    \161\ 248.8 annual burden hours per Participant * 23
Participants = 5,722.4 aggregate annual burden hours.
---------------------------------------------------------------------------

    If any Quarterly Progress Report is approved only by a
Supermajority Vote, and not by a unanimous vote, the proposed
amendments require each Participant whose Operating Committee member
did not vote to approve that Quarterly Progress Report to separately
file with the Commission and make available on a public website an
explanatory statement identifying itself and explaining why it did not
vote to approve the Report.\162\ Because there are currently 23
Participants, each Quarterly Progress Report would need to be approved
by at least 16 members of the Operating Committee to satisfy the
Supermajority Vote provisions of the CAT NMS Plan.\163\ At maximum,
then, only seven Participants would file an explanatory statement in
connection with a Quarterly Progress Report approved only by
Supermajority Vote.\164\ The Commission preliminarily estimates that
each of the seven Participants submitting an explanatory statement will
incur, on average, an ongoing burden of 15 hours to draft such
statement.\165\ When this aggregate burden is averaged across all
Participants, it amounts to an ongoing quarterly burden of
approximately 4.6 hours per Participant,\166\ an ongoing annual burden
of approximately 18.3 hours per Participant,\167\ and an aggregate
annual burden of approximately 420 hours.\168\
---------------------------------------------------------------------------

    \162\ For the purposes of the Paperwork Reduction Act, the
Commission is assuming that this task will be performed by a Chief
Regulatory Officer or a Chief Compliance Officer. See note 143
supra.
    \163\ See note 147 supra.
    \164\ See note 148 supra.
    \165\ See note 149 supra.
    \166\ 7 Participants * 15 burden hours = 105 burden hours in
aggregate. 105 burden hours / 23 Participants = 4.6 burden hours.
    \167\ 4.6 burden hours x 4 Quarterly Progress Reports = 18.3
burden hours.
    \168\ 18.3 annual burden hours x 23 Participants = 420 burden
hours.
---------------------------------------------------------------------------

    Additionally, the Commission estimates that each Participant will
incur an ongoing quarterly burden, on average, of approximately 10
hours to ensure that each Quarterly Progress Report, and any
explanatory statement (if applicable), is filed with the Commission and
made publicly available on a website.\169\ The Commission therefore
estimates an annual burden, on average, of approximately 40 hours for
each Participant,\170\ and an aggregate annual burden of 920 hours for
all Participants,\171\ to publicly post and submit to the Commission
the Reports.
---------------------------------------------------------------------------

    \169\ The Commission bases this estimate on a full-time
Compliance Manager and Programmer Analyst each spending
approximately 5 hours, for a combined total of approximately 10
hours, to prepare and publicly post the relevant documents.
    \170\ 10 burden hours per Quarterly Progress Report x 4 quarters
= 40 annual burden hours per Participant.
    \171\ 40 annual burden hours per Participant x 23 Participants =
920 aggregate annual burden.
---------------------------------------------------------------------------

    In total, therefore, the Commission estimates that each Participant
will incur, on average, an ongoing burden of approximately 76.8 hours
per Quarterly Progress Report,\172\ for an annual average estimated
burden of 307.2 hours \173\ and approximately 7,065.6 hours in
aggregate.\174\
---------------------------------------------------------------------------

    \172\ 62.2 hours + 4.6 hours + 10 hours = 76.8 burden hours.
    \173\ 76.8 hours x 4 Quarterly Progress Report = 307.2 hours.
    \174\ 307.2 hours x 23 Participants = 7,065.6 burden hours. See
Section IV.C. infra for a dollar cost estimate of this burden.
---------------------------------------------------------------------------

    Similarly, the Commission estimates that each Participant will
expend, on an ongoing basis, approximately the same amount of external
public relations, legal, and consulting costs associated with the
Implementation Plan on each Quarterly Progress Report. Accordingly, the
Commission estimates, on average, an ongoing quarterly cost of
approximately $8,695.65 for each Participant, an ongoing annual cost of
$34,782.60 for each Participant,\175\ and an aggregate annual cost of
approximately $799,999.80.\176\ The Commission notes that a portion of
these costs may be recoverable from Industry Members, if consistent
with the Exchange Act and the CAT NMS Plan.\177\
---------------------------------------------------------------------------

    \175\ $8,695.65 per Participant per Quarterly Progress Report *
4 Quarterly Progress Reports = $34,782.60 per Participant per year
for the Quarterly Progress Reports.
    \176\ $34,782.60 per Participant * 23 Participants = $799,999.80
aggregate annual cost.
    \177\ See, e.g., Article XI of the CAT NMS Plan.
---------------------------------------------------------------------------

E. Collection of Information Is Mandatory

    Each collection of information discussed above would be a mandatory
collection of information.

F. Confidentiality of Responses to Collection of Information

    Neither the Implementation Plan nor the Quarterly Progress Reports
would be confidential. Rather, each would be publicly posted by the
Participants on a website.

G. Retention Period for Recordkeeping Requirements

    National securities exchanges and national securities associations
are required to retain records and information pursuant to Rule 17a-1
under the Exchange Act.\178\
---------------------------------------------------------------------------

    \178\ 17 CFR 240.17a-1.
---------------------------------------------------------------------------

H. Request for Comments

    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comments to:
    29. Evaluate whether the proposed collections of information are
necessary for the proper performance of the functions of the agency,
including whether the information shall have practical utility;
    30. Evaluate the accuracy of our estimates of the burden of the
proposed collection of information;
    31. Determine whether there are ways to enhance the quality,
utility, and clarity of the information to be collected; and
    32. Evaluate whether there are ways to minimize the burden of
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology.
    Persons submitting comments on the collection of information
requirements should direct them to the Office of Management and Budget,
Attention: Desk Officer for the Securities and Exchange Commission,
Office of Information and Regulatory Affairs, Washington, DC 20503, and
should also

send a copy of their comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090, with reference
to File Number 4-698. Requests for materials submitted to OMB by the
Commission with regard to this collection of information should be in
writing, with reference to File Number 4-698 and be submitted to the
Securities and Exchange Commission, Office of FOIA/PA Services, 100 F
Street NE, Washington, DC 20549-2736. As OMB is required to make a
decision concerning the collection of information between 30 and 60
days after publication, a comment to OMB is best assured of having its
full effect if OMB receives it within 30 days of publication.

IV. Economic Analysis

    Section 3(f) of the Exchange Act requires the Commission, whenever
it engages in rulemaking and is required to consider or determine
whether an action is necessary or appropriate in the public interest,
to consider, in addition to the protection of investors, whether the
action would promote efficiency, competition, and capital
formation.\179\ In addition, Section 23(a)(2) of the Exchange Act
requires the Commission, when making rules under the Exchange Act, to
consider the impact such rules would have on competition.\180\ Exchange
Act Section 23(a)(2) prohibits the Commission from adopting any rule
that would impose a burden on competition not necessary or appropriate
in furtherance of the purposes of the Exchange Act. The discussion
below addresses the likely economic effects of the proposed rule,
including the likely effect of the proposed rule on efficiency,
competition, and capital formation.
---------------------------------------------------------------------------

    \179\ 15 U.S.C. 78c(f).
    \180\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    As discussed above, since the adoption of Rule 613 in 2012, CAT
implementation has experienced recurrent delays.\181\ These
implementation delays postpone the benefits of the CAT NMS Plan to
investors \182\ and may result in additional costs to Industry
Members.\183\ In the Notice, the Commission discussed how the
governance structure of the CAT NMS Plan could affect the costs and
benefits of the CAT NMS Plan and noted that the Commission retains the
ability to modify the CAT NMS Plan.\184\ The CAT NMS Plan does not
require the Participants to provide transparency to industry or
investors regarding implementation, nor does it create financial
accountability for the Participants to complete the implementation
process. The Commission preliminarily believes that modifying the CAT
NMS Plan to require operational transparency and provide financial
accountability for meeting implementation milestones will impose more
structure on the process and is appropriate to achieve timely
completion of the CAT. The proposed amendments would: (1) Provide more
accountability and transparency by requiring the Operating Committee to
approve by Supermajority Vote and file with the Commission and publish
on a public website certain information, including the Implementation
Plan as well as quarterly reports detailing progress made toward
achieving the Implementation Milestones set forth in the Implementation
Plan and (2) introduce financial accountability to the CAT NMS Plan by
requiring the Participants to meet four critical CAT implementation
milestones--the Financial Accountability Milestones--by certain dates
in order to collect the full amount of any related Post-Amendment
Industry Member Fees established by the Operating Committee or
implemented by the Participants.\185\
---------------------------------------------------------------------------

    \181\ See Part I supra.
    \182\ See CAT NMS Plan Approval Order, supra note 4, at Section
V.E.
    \183\ See Part IV.A. infra.
    \184\ See Securities Exchange Act Release No. 77724 (April 27,
2016), 81 FR 30614 (May 17, 2016) (File No. 4-698) (``Notice''), at
Section IV.E.3.d.1.
    \185\ See Part II supra.
---------------------------------------------------------------------------

    The proposed amendments would increase operational transparency by
requiring Participants to publish a complete CAT implementation plan,
and publish a complete progress report quarterly.\186\ Further, the
proposed amendments require approval by a Supermajority Vote of the
Operating Committee for both the implementation plan and the quarterly
progress reports.\187\ These operational transparency provisions of the
proposed amendments should provide Industry Members with more certainty
surrounding the implementation timeline of CAT, reducing associated and
unnecessary implementation costs.\188\
---------------------------------------------------------------------------

    \186\ See Part II.A. supra.
    \187\ See Part IV.B, infra for further discussion of this
approval requirement.
    \188\ The Commission preliminarily believes that uncertainty in
the CAT NMS Plan implementation timeline may potentially increase
Industry Member implementation costs. See Part IV.B, infra for
further discussion.
---------------------------------------------------------------------------

    The proposed amendments also establish Financial Accountability
Milestones and Reduced Fee Recovery Rates (``RFRRs'') that take effect
and increase in magnitude in response to delays in meeting certain
Financial Accountability Milestones.\189\ Thus, the proposed amendments
would shift some costs from Industry Members to Participants if the
Participants fail to meet certain Financial Accountability
Milestones.\190\ The Commission preliminarily believes this cost
shifting would offset any Industry Member costs imposed by delays in
implementation. The Commission further believes that the RFRRs
incentivize the Participants to implement the CAT NMS Plan
expeditiously and efficiently, which would result in investors
realizing the benefits of the CAT NMS Plan sooner. If the Participants
miss the deadline for Initial Industry Member Core Equity Reporting by
more than 180 days, or the deadlines for the other three Financial
Accountability Milestones by more than 270 days, the structure of the
RFRRs would not allow them to recover expenses incurred during the
Period. The Commission acknowledges that after 270 days or 180 days, as
applicable, the amendments would no longer directly incentivize the
Participants, because the 0% recovery rate cannot be further reduced by
continued delays. However, the Participants would continue to incur and
be solely responsible for the operating costs of the Central
Repository, and could not share any ongoing operational costs incurred
during the Period with Industry Members.\191\ Participants would only
be

allowed to partially recover from Industry Members those expenses
incurred after the Period ended, which could only be achieved by
meeting the applicable Financial Accountability Milestones.
Furthermore, to the extent that Financial Accountability Milestones are
inherently sequential, Participants would continue to be incentivized
to complete the current Period by achieving the Financial
Accountability Milestones to avoid triggering RFRRs in the subsequent
Period. Consequently, although incentives would be diminished, the
Participants would continue to be incentivized to complete the Period
by meeting the Financial Accountability Milestones.
---------------------------------------------------------------------------

    \189\ The Plan allows Participants to recover a percentage of
certain CAT costs from Industry Members. The Plan anticipates that
the Participants will submit a fee filing that establishes what
percentage of CAT expenses will be passed on to Industry Members,
and how CAT expenses will be shared among Participants and among
Industry Members. Because no CAT fee filing has been approved, the
proportion of CAT costs that will be borne by Industry Members is
unknown. The magnitude of the incentives from RFRRs ultimately
depends on the proportion of fees that Participants are permitted to
recover from Industry Members.
    In the event that RFRRs are triggered, the Commission proposes
to reduce the amount of fees that the Participants are allowed to
recover from Industry Members according to the fee schedule
described in Part II.B.2. supra.
    \190\ Although some Industry Members provide advice to the
Participants through the actions of the CAT Advisory Committee, they
do not have votes on the CAT Operating Committee and thus cannot
initiate or control actions taken by the Operating Committee that
might facilitate expeditious and efficient implementation of the
Plan. Furthermore, in later stages of CAT implementation, in the
event that Industry Members' actions might delay implementation of
the Plan, the Participants have regulatory authority over Industry
Members and can use that authority to address failures by Industry
Members to comply with reporting requirements under the Plan.
    \191\ The Participants' Central Repository costs consist of both
implementation costs and operating costs, as discussed below; see
note 227 infra. If Participants missed a Financial Accountability
Milestone by 270 days and triggered a 0% RFRR, none of the expenses
the Participants incurred during the Period could be recovered from
Industry Members. However, the Participants would continue to incur
operating costs for the Central Repository, and the magnitude of
those operating costs during the period would be a function of the
duration of the Period. To minimize the financial impact of the
RFRRs, the Participants would continue to be incentivized to meet
the Financial Accountability Milestones and end the Period, so that
they would no longer be solely responsible for the operating costs
of the Central Repository and could again, potentially, resume
sharing these costs with Industry Members.
---------------------------------------------------------------------------

    Wherever possible, the Commission has quantified the likely
economic effects of the amendments, including the direct costs to the
Participants. However, some of the costs, benefits, and other economic
effects we discuss are inherently difficult to quantify, including the
benefits of accelerating the realization of the improvements to
investor protection that are expected to result from the implementation
of the CAT, the benefits of transparency to industry members and the
public, and the potential impact on competition among exchanges.
Additionally, the Commission preliminarily believes costs caused by
uncertainty in the timeline for CAT implementation and retirement of
duplicative reporting systems may vary significantly across Industry
Members because of the diversity of their approaches to regulatory data
reporting. Therefore, much of our discussion is qualitative in nature.
Our inability to quantify certain costs, benefits, and effects does not
imply that such costs, benefits, or effects are less significant. We
request that commenters provide relevant data and information to assist
us in analyzing the economic consequences of the proposed amendments.

A. Baseline

1. Transparency of CAT Implementation Status
    Industry Members obtain information about the implementation status
of the CAT NMS Plan through several mechanisms.\192\ These include
information gleaned from participation in the CAT Advisory Committee;
information provided on websites operated by the CAT Operating
Committee; presentations to industry sponsored by the CAT Operating
Committee; and information presented at meetings of the Industry
Technical Specifications Working Group.
---------------------------------------------------------------------------

    \192\ The Plan requires that the Chief Compliance Officer shall
appropriately document objective milestones to assess progress
toward the implementation of the Plan, but has no requirement that
this information be disseminated to industry or the Commission. See
CAT NMS Plan, supra note 4, at Section 6.7(b).
---------------------------------------------------------------------------

    A few representatives of Industry Members are privy to information
through their participation on the CAT Advisory Committee, but this
information is not widely available to industry. These advisory
committee members ``have the right to attend meetings of the Operating
Committee or any Subcommittee, to receive information concerning the
operation of the Central Repository,'' subject to certain limitations
outlined in the CAT NMS Plan.\193\ Further, ``Members of the Advisory
Committee shall receive the same information concerning the operation
of the Central Repository as the Operating Committee; provided,
however, that the Operating Committee may withhold information it
reasonably determines requires confidential treatment. Any information
received by members of the Advisory Committee in furtherance of the
performance of their functions pursuant to this Agreement shall remain
confidential unless otherwise specified by the Operating Committee.''
\194\ The Commission preliminarily believes that Industry Members of
the CAT Advisory Committee may be provided with significant information
regarding the status of implementation, but given the confidential
treatment required by the CAT NMS Plan, the Industry Members on the
Advisory Committee are not free to share it with other Industry
Members. Consequently, the Commission preliminarily believes that most
Industry Members obtain little information about CAT implementation
through this mechanism.
---------------------------------------------------------------------------

    \193\ See CAT NMS Plan, supra note 4, at Section 4.13.
    \194\ See CAT NMS Plan Approval Order, supra note 4, at Section
VI.D.1.a, note 3243.
---------------------------------------------------------------------------

    In addition, the Operating Committee provides a website with
information on the CAT NMS Plan, but there is no requirement in the CAT
NMS Plan to keep it current.\195\ The website provides access to the
current CAT NMS Plan, current technical specifications, an archive of
information presented at past industry events, and other information
about the CAT of interest to industry.
---------------------------------------------------------------------------

    \195\ See https://www.catnmsplan.com/index.html. The public can
also glean information about Plan implementation from this website.
---------------------------------------------------------------------------

    Furthermore, the Operating Committee provides occasional updates to
industry on the state of implementation. These updates are documented
on the CAT NMS Plan website. These updates include the April 3, 2019,
Industry Outreach presentation in which the Operating Committee
presented a revised implementation timeline for Industry Member
reporting with deadlines that extend even further beyond those in the
CAT NMS Plan.\196\ Subsequent to this presentation, the CAT NMS Plan
website added a ``Timeline'' section. The CAT NMS Plan, however, has no
requirement that this be updated.
---------------------------------------------------------------------------

    \196\ See note 47 supra.
---------------------------------------------------------------------------

    Another source of information about CAT implementation available to
the industry is the Industry Technical Specifications Working Group.
This working group, which makes recommendations on Industry Member-
specific implementation issues, is comprised of members of the Advisory
Committee and additional industry organization representatives, with
subject matter experts from the industry invited to lead or facilitate
discussion of a particular issue. This working group is not bound by
confidentiality agreements, so some information discussed in the
working group is shared with members of the industry, primarily through
outreach efforts by industry associations.
2. Status of Implementation
    As discussed previously, there have been repeated delays to
implementation and it remains uncertain when CAT will be fully
implemented.\197\ Although the Participants have not yet published a
timeline detailing when full functionality of Participant reporting
would be completed by the new plan processor, in a April 2019 Industry
Outreach presentation, the Operating Committee presented a revised
implementation timeline for Industry Member reporting with deadlines
that extend even further beyond those in the CAT NMS Plan. The revised
deadline

for Industry Member reporting to the CAT would require the reporting by
Industry Members of equities data by April 2020 and simple options data
by May 2020.\198\ These delays to implementation of the CAT NMS Plan
delay the time at which investors will realize the significant benefits
of the CAT contemplated in the CAT NMS Plan Approval Order.\199\
Specifically, delays in the implementation of the CAT have delayed
improvements in regulatory activities such as market analysis and
reconstruction, surveillance, and investigations, leading to delays in
increased investor protection.\200\
---------------------------------------------------------------------------

    \197\ See Part I supra for a detailed discussion of Plan
implementation status.
    \198\ See note 47 supra.
    \199\ See CAT NMS Plan Approval Order, supra note 4, at Section
V.E.
    \200\ See id. The Approval Order noted that, by providing
regulators with more complete, accurate, accessible, and timely
trade and order data, the CAT would improve regulatory activities
such as market analysis and reconstruction, surveillance, and
investigations, leading to increased investor protection.
---------------------------------------------------------------------------

    In addition, the Commission preliminarily believes that the
multiple missed deadlines in the CAT NMS Plan has led to uncertainty
for Industry Members surrounding the timeline of CAT
implementation.\201\ In the CAT NMS Plan Approval Order, the Commission
discussed the complexities of, and diversity of approaches to, Industry
Member regulatory data reporting,\202\ and the costs that Industry
Members face in implementing CAT reporting.\203\ The Commission
understands that for many Industry Members, significant changes to
regulatory data reporting systems require planning for the allocation
of financial, technological, and human resources. The Commission lacks
specific information on the status of Industry Member CAT reporting
implementation efforts, but recognizes the possibility that some
Industry Members, particularly those that self-report regulatory data,
may already be incurring costs due to this uncertainty, as discussed
further below.\204\ Therefore, the Commission recognizes that it is
possible that Industry Members may be incurring additional costs,
beyond those anticipated due to the delay.\205\ Finally, the Commission
believes that any Industry Members that have begun implementation
activities are likely incurring costs for tracking and planning for CAT
implementation and notes that the length of the implementation period
has extended longer than anticipated. This may increase costs to
Industry Members.
---------------------------------------------------------------------------

    \201\ As discussed in the CAT NMS Plan Approval Order, many
Industry Members rely on service bureaus to report their regulatory
data. These service bureaus face the same uncertainty that is
described here for Industry Members. Some but not all service
bureaus are Industry Members. See CAT NMS Plan Approval Order, supra
note 4, at Section V.F.1.c.(2).
    \202\ See id.
    \203\ See id. at Section V.F.2.
    \204\ In the case of the majority of Industry Members that rely
on service providers for their regulatory data reporting, those
service providers face significant CAT implementation costs and
similar uncertainty as large self-reporting Industry Members, and
any additional costs the service providers face in implementing CAT
reporting due to this uncertainty are likely to be passed on to
their Industry Member customers.
    \205\ See Part IV.B, infra.
---------------------------------------------------------------------------

B. Benefits

    The Commission preliminarily believes the proposed amendments offer
two primary benefits. First, because the amendments include financial
accountability provisions that may cause the CAT to be implemented more
expeditiously and efficiently, investors could realize the benefits of
the CAT sooner than they would be realized without the proposed
amendments. Second, the Commission preliminarily believes that Industry
Members would have more certainty surrounding the implementation
timeline of CAT, and the timeline for retirement of OATS,\206\ reducing
possible associated and unnecessary implementation and maintenance
costs.\207\
---------------------------------------------------------------------------

    \206\ The Commission continues to believe that the period of
duplicative reporting of OATS data will be less than 2-2.5 years,
but recognizes that the multiple delays in CAT implementation has
increased uncertainty about when the duplicative reporting period
will commence and end. Neither the Plan nor the Participants'
industry outreach materials currently offer guidance to Industry
Members on when duplicative reporting systems are likely to be
retired. Consequently, Industry Members cannot reasonably estimate
the expected duration of the period of duplicative reporting, or
when it might begin and/or end. In the CAT Approval Order,
duplicative reporting was anticipated to cost Industry Members up to
$1.4 billion annually between the time when Industry Members begin
to report data to the CAT and when duplicative regulatory data
reporting systems are retired. See CAT NMS Plan Approval Order,
supra note 4, at Section V.F.2.b.
    \207\ See Part IV.D.1. infra for discussion of impacts on
efficiency of Industry Member CAT implementation.
---------------------------------------------------------------------------

    The amendment's financial accountability provisions may cause the
CAT to be implemented more expeditiously and efficiently, which could
allow investors to realize the benefits of the CAT sooner than they
would be realized without the proposed amendments. While the Commission
continues to believe that implementation of CAT will allow the
Participants to improve their regulatory activities to the benefit of
investors,\208\ the Commission also notes that implementation of the
proposed amendments may accelerate the Participants' realization of
costs relative to the current state of development. These include costs
to build and operate the Central Repository, report Participant data to
CAT, and to update their regulatory surveillance to take advantage of
data available in the Central Repository.\209\ Consequently, the
Commission preliminarily believes that the Participants may have a
financial disincentive to implement CAT expeditiously and efficiently
because delays in CAT implementation delay realization of some of these
costs, such as costs to update their regulatory surveillance. By
amending the CAT NMS Plan to provide RFRRs to encourage implementation,
the Commission preliminarily believes the Participants will be more
likely to implement CAT expeditiously and efficiently to the benefit of
investors.\210\
---------------------------------------------------------------------------

    \208\ See CAT NMS Plan Approval Order, supra note 4, at Section
V.E.2.
    \209\ See CAT NMS Plan Approval Order, supra note 4, at Section
V.F.
    \210\ Missing Financial Accountability Milestones will result in
Participants not being able to recoup certain costs from Industry
Members. This will increase the costs for which Participants will
ultimately be responsible, with those costs increasing as
implementation delays persist.
---------------------------------------------------------------------------

    As discussed in more detail in the CAT NMS Plan Approval Order, by
providing regulators with more complete, accurate, accessible, and
timely trade and order data, the CAT is expected to improve regulatory
activities such as market analysis and reconstruction, surveillance,
and investigations, leading to increased investor protection.\211\ If
the Participants complete the implementation of the CAT more
expeditiously and efficiently as a result of the proposed amendments,
these benefits will be realized more quickly.
---------------------------------------------------------------------------

    \211\ Id. at Section V.E.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed amendments
should provide Industry Members with more certainty surrounding the
implementation timeline of CAT and the retirement schedule for OATS,
which should help reduce any unnecessary implementation and maintenance
costs associated with this uncertainty.\212\ As discussed previously,
the Commission recognizes that there is significant uncertainty
regarding the CAT implementation timeline. Further, based on
discussions with Industry Members and staff expertise, the Commission
preliminarily believes that this uncertainty may be causing Industry
Members to incur costs they would not have incurred had the CAT been
completed on its original

schedule.\213\ As noted above, for many Industry Members, significant
changes to regulatory data reporting systems require planning for the
allocation of financial, technological, and human resources, and the
Commission preliminarily believes that uncertainty surrounding CAT
implementation timelines may be hampering Industry Members' ability to
efficiently perform that planning. The amendments may result in the
Participants implementing CAT more expeditiously and efficiently and
should reduce uncertainty because Industry Members will be aware of the
financial accountability measures that Participants face if Financial
Accountability Milestones are missed, and are likely to assume that the
Participants will be incentivized to meet those milestones. Further,
information in the Implementation Plan and Quarterly Progress Reports,
and the associated requirement for approval by a Supermajority Vote of
the Operating Committee, combined with any statement identifying
Participants that did not vote to approve and explaining why the member
did not vote to approve, would provide Industry Members with more
complete and possibly more reliable information on implementation
requirements and timing. This may allow them to implement CAT reporting
more efficiently, particularly if the content of the disclosures
provides sufficient information to provide greater certainty on
implementation progress. However, the Commission preliminarily believes
this benefit may be limited somewhat by the fact that Participants may
be incentivized not to vote against approval of the Implementation Plan
or Quarterly Progress Reports because doing so would cause them to
incur costs associated with preparing, filing with the Commission and
publishing an explanatory statement of their Operating Committee
Member's vote. Consequently, in the event that a Participant is
inclined to vote against approval of the Implementation Plan or a
Quarterly Progress Report, in the absence of enough votes to prevent
approval, the Participant may be incentivized to vote to approve the
Implementation Plan or Quarterly Progress Report and thus not provide
an explanatory statement that might contain information useful to
Industry Members.
---------------------------------------------------------------------------

    \212\ See Part IV.A.2. supra for discussion of uncertainty
surrounding CAT implementation timing.
    \213\ In the course of reviewing the CAT NMS Plan and preparing
the Notice, Commission staff gathered information in conversations
with Industry Members on how Industry Members implement changes in
regulatory data reporting requirements and what factors drive
Industry Member costs when those requirements change. See Notice,
supra Note 184, at n880.
---------------------------------------------------------------------------

    Based on staff expertise and discussions with Industry
Members,\214\ the Commission preliminarily believes that potential
reductions in cost due to uncertainty could be attributed to a number
of factors. Less uncertainty about the CAT implementation timeline may
allow Industry Members and service bureaus to make efficient decisions
regarding when to commence implementation activities and how to
implement in the most cost-efficient manner. More certainty may allow
Industry Members to negotiate more favorable contracts with vendors
because they will have more certainty about date ranges when vendor
services would be required for CAT reporting implementation activities.
Furthermore, as discussed in the CAT NMS Plan Approval Order,
maintaining legacy data reporting systems like those used to report
OATS is likely to entail allocation of technological and human
resources. If Industry Members have more certainty regarding how long
these resources are required, they may make more cost-efficient
decisions regarding maintaining or replacing hardware and software used
to report legacy regulatory data. Finally, the uncertainty surrounding
the timeline of CAT implementation may impose significant opportunity
costs on Industry Members. Because changes to regulatory data reporting
systems can be significant IT projects for Industry Members, Industry
Members may defer other large projects that might require an
overlapping set of resources until the operational and financial
requirements and timing for CAT implementation are better known.
Decreasing uncertainty may allow Industry Members to better plan for
and proceed with other projects that may have been deferred due to
uncertainty in the CAT implementation timeline.
---------------------------------------------------------------------------

    \214\ See Notice, supra Note 184, at n880.
---------------------------------------------------------------------------

    The Commission recognizes that if the Participants continue to miss
deadlines under the amendments, it would result in more uncertainty for
Industry Members with respect to whether and when the Participants are
capable of achieving CAT implementation, particularly if the
Participants are unable to make progress with the financial
accountability measures. The Commission preliminarily believes this
uncertainty is mitigated by the increased transparency afforded by the
Quarterly Progress Reports, which should allow Industry Members to see
progress toward meeting Implementation Milestones.
    Finally, the requirement that the Implementation Plan and Quarterly
Progress Reports be submitted to the CEO, President, or an equivalently
situated senior officer of each Participant prior to the Operating
Committee approval vote, is intended to promote senior management
attention and promote accountability with respect to CAT
implementation. The Commission preliminarily believes that this
requirement may thereby facilitate the expeditious and efficient
implementation of CAT.

C. Costs

    The Commission preliminarily believes the proposed amendments are
likely to have both direct and indirect costs, detailed below. The
Commission preliminarily estimates that the direct costs to the
Participants from the proposed amendments include up to approximately
$3.7 MM in ongoing annual costs and total one-time costs of up to
approximately $932,000.\215\ If the RFRRs are triggered, during a one-
year period during implementation, up to $120MM in costs of CAT
implementation and operation could be shifted from Industry Members to
Participants, but this would not change total costs to industry as a
whole from the CAT NMS Plan. The Commission expects, however, that the
proposed amendments would have additional indirect costs. These consist
of potentially accelerated implementation costs to Participants,
Industry Members, and Service Bureaus; possible costs related to the
potential for inefficient acceleration of the implementation of the
CAT; and costs related to the possible market exit of exchanges if the
RFRRs in the amendments are triggered. These costs are likely to be
passed on to investors.
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    \215\ These maximum totals assume that upon each approval vote,
seven Participants incur costs to prepare and publish statements
explaining why they did not vote to approve the document in
question. These costs are discussed further below.
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    For purposes of the PRA,\216\ the Commission preliminarily
estimates that the direct costs to Participants from the proposed
amendments \217\ include

up to approximately $3.7MM \218\ in annual costs and total one-time
costs of up to approximately $932,000.\219\ The ongoing annual costs
per Participant are comprised of approximate labor costs of up to
$145,000 \220\ and external consulting costs of $35,000 \221\ to
prepare, approve through Supermajority Vote of the Operating Committee,
publish, and when applicable, for each Participant whose Operating
Committee member did not vote to approve the Implementation Plan to
separately file with the Commission and make available on a public
website an explanatory statement identifying itself and explaining why
it did not vote to approve the Quarterly Progress Report.\222\ The one-
time costs per Participant include up to $36,000 \223\ in labor costs
and $8,700 \224\ in external consulting costs to prepare, approve
through Supermajority Vote of the Operating Committee, publish, and
when applicable, for each Participant whose Operating Committee member
did not vote to approve the Implementation Plan to separately file with
the Commission and make available on a public website an explanatory
statement identifying itself and explaining why it did not vote to
approve the Implementation Plan.
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    \216\ Direct costs cited in this paragraph are quantified from
estimates in the PRA. See Part III supra. Discussion of other direct
costs follows discussion of costs from the PRA.
    \217\ The PRA estimates cost represent an average; the
Commission expects that some Participants will incur greater costs,
some lesser. In calculating the costs to prepare, review, and vote
on the Implementation Plan and Quarterly Progress Reports on a per
Participant basis, the Commission recognizes that its estimates per
Participant may be overstated to the extent that there are economies
of scale for Participants who share a common corporate parent.
Specifically, the voting representative for one Participant may
serve as the voting representative on the Operating Committee for
multiple affiliated Participants under Section 4.2(a) of the CAT NMS
Plan. Once this representative conducts the necessary background
work to vote on the Implementation Plan or a Quarterly Progress
Report, and, if applicable, for the Participant to prepare an
explanation of why this representative did not vote to approve the
Implementation Plan or Quarterly Progress Report, the representative
would not need to duplicate all of his or her efforts for another
Participant. Thus, the Commission believes that its estimates may be
overstated for some Participants in the sense that one
representative reviewing and voting on the Implementation Plan or
Quarterly Progress Reports might not require 5 hours for each
exchange for which he or she is performing this task. On the other
hand, the Commission believes that its estimates for Participants
who are not affiliated with other Participants might be understated
for some Participants because they are unable to benefit from
economies of scale. Representatives for unaffiliated exchanges may
require more than 5 hours to perform this same task. The Commission
preliminarily believes that 5 hours is a reasonable estimate of
average representative time required.
    \218\ Assuming that each Supermajority Vote has the minimum of
16 Participants voting to approve each Quarterly Progress Report,
total annual ongoing maximum cost is (23 Participants x $119,471 per
Participant + 28 explanatory statements x $6,472.50 per statement =
$2,747,838) in labor costs plus (23 Participants x $34,800 =
$800,400) in external consulting costs = $3,729,468 in total costs.
See Note 220, infra.
    \219\ Assuming that each Supermajority Vote has the minimum of
16 Participants voting to approve the Implementation Plan, total
one-time maximum cost is (23 Participants x $29,868 per Participant
= $686,959) in labor costs plus (23 Participants x $8,700 =
$200,100) in external consulting costs = $932,367 in total costs.
See Note 223, infra.
    \220\ See Part III.D. supra. Annual labor costs per Participant
assume preparation, approval through Supermajority Vote of the
Operating Committee, and publication of four Quarterly Progress
Reports and any accompanying statements explaining why a Participant
did not vote to approve the Quarterly Progress Report. Preparation
of each Quarterly Progress Report requires 7 hours of Attorney labor
at $427 per hour; 22.6 hours of Systems Analyst labor at $270 per
hour; 22.6 hours of Compliance Manager labor at $318 per hour. 4 x
[($427 x 7) + ($270 x 22.6) + ($318 x 22.6)] = $65,111. Time for the
Participant's Operating Committee Member to prepare for and vote on
the Quarterly Progress Reports is assumed to be 5 hours at a rate of
$545 per hour. 4 x ($545 x 5) = $10,900, using the hourly rate for a
Chief Compliance Officer. Publication and filing of the Quarterly
Progress Reports and any explanatory statements of the Operating
Committee Member's vote is assumed to require 5 hours of Compliance
Manager labor at $318 per hour and 5 hours of Programmer/Analyst
labor at $220 per hour. 4 x ($318 x 5) + ($220 x 5) = $10,760. The
Quarterly Progress Report shall be submitted to the President, CEO
or equivalently situated senior officer of each Participant prior to
the approval vote of the Operating Committee, and any subsequent
consultation, including with their Operating Committee member, is
assumed to require five hours of labor at $1,635 per hour. 4 x
($1,635 x 5) = $32,700. See Note 225 infra, for discussion of this
hourly rate. Total annual costs for each Participant are thus
$65,111 + $10,900 + $10,760 + $32,700 = $119,471. If a Participant
is required to prepare a statement explaining why it did not vote to
approve a Quarterly Progress Report, preparation requires 7.5 hours
of Compliance Manager Labor at $318 per hour and 7.5 hours of Chief
Compliance Officer labor at $545 per hour. ($318 x 7.5) + ($545 x
7.5) = $6472.5. For each Quarterly Progress Report, 23 Participants
will incur costs to prepare the report, but no more than 7 will
incur costs to prepare statements explaining why they did not vote
to approve the Quarterly Progress Report. See Part III.D.2, supra.
Consequently, there may be up to 28 such quarterly statements (4 x
7) required annually. Thus, Quarterly Progress Report preparation,
depending on the number of explanatory statements required, would
have an annual aggregate maximum labor cost of (23 x $119,471) + (28
x $6472.5) = $3,729,468 with a per Participant average labor cost of
$3,729,468 / 23 = $127,351. Hourly rates are based on hourly rates
for Attorneys, Systems Analysts, and Compliance Managers from
SIFMA's Management & Professional Earnings in the Securities
Industry 2013, modified by Commission staff to account for an 1800-
hour work-year and inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits, and overhead. Salary
information for voting representatives uses the Chief Compliance
Officer rate of from SIFMA's Management & Professional Earnings in
the Securities Industry 2013, modified as above to $545 per hour.
    \221\ See Part III.D. supra. External consulting costs assume
four Quarterly Progress Reports. 4 x $8,696 = $34,784.
    \222\ These annual costs would be incurred until completion of
the CAT Implementation Plan. See Part III.D.2. supra.
    \223\ See Part III.D.2. supra. Preparation and approval through
Supermajority Vote of the Operating Committee of the Implementation
Plan requires 7 hours of Attorney labor at $427 per hour; 22.6 hours
of Systems Analyst labor at $270 per hour; 22.6 hours of Compliance
Manager labor at $318 per hour. ($427 x 7) + ($270 x 22.6) + ($318 x
22.6) = $16,278. Time for the Participant's Operating Committee
Member to prepare for and vote on the Implementation plan is assumed
to be 5 hours at a rate of $545 per hour. ($545 x 5) = $2,725, using
the hourly rate for a Chief Compliance Officer. Publication and
filing of the Implementation Plan and any explanatory statement of
the Operating Committee Member's vote is assumed to require 5 hours
of Compliance Manager labor at $318 per hour and 5 hours of
Programmer/Analyst labor at $220 per hour. ($318 x 5) + ($220 x 5) =
$2,690. The Implementation Plan shall be submitted to the President,
CEO or equivalently situated senior officer of each Participant
prior to the approval vote of the Operating Committee, and any
subsequent consultation, including with their Operating Committee
Member, is assumed to require five hours of labor at $1,635 per
hour. ($1,635 x 5) = $8,175. See Note 225, infra, for discussion of
this hourly rate. Total one time labor costs are $16,278 + $2,725 +
$2,690 + $8,175 = $29,868. If an explanatory statement of the
Operating Committee Member's vote needs to be prepared, this would
require 7.5 hours of labor by a Compliance Manager at $318 per hour
and 7.5 hours of labor by the Chief Compliance Officer at $545 per
hour. ($318 x 7.5) + ($545 x 7.5) = $6,473. Thus, Implementation
Plan preparation, depending on the number of explanatory statements
required, would have an annual aggregate maximum labor cost of (23 x
$29,868) + (7 x $6472.5) = $732,267 with a per Participant average
labor cost of $732,267 / 23 = $31,838. Aggregate totals assume 23
Participants and 7 explanatory statements.
    \224\ See Part III.D.2. supra.
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    The Proposed Amendments require that both the Implementation Plan
and Quarterly Progress Reports be submitted to the President, CEO or
equivalently situated senior officer of each Participant prior to the
approval vote by the Operating Committee. In connection with this
requirement, the Commission preliminarily estimates that each SRO will
incur one-time consultation costs of $8,200 for the Implementation
Plan, and ongoing annual costs of $33,000 for Quarterly Progress
Reports until such time as CAT is fully implemented.\225\
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    \225\ The Commission estimates that the President, CEO or
equivalently situated senior officer of each Participant will spend
approximately five hours in consultations, including with the
Participant's Operating Committee member, and estimates this will
cause each Participant to incur labor costs of (5 x $1635) = $8,175
for the Implementation Plan and (4 x $8,175) = $32,700 annually for
Quarterly Progress Reports. Hourly rates are based on hourly rates
for Chief Compliance Officers from SIFMA's Management & Professional
Earnings in the Securities Industry 2013, modified by Commission
staff to account for an 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead. Salary information for CEO/presidents of
exchanges are not generally publically available as they might be
for CEO/presidents of exchange holding groups. The Commission
estimates an hourly rate for the President, CEO or equivalently
situated senior officer of an exchange by using the hourly rate for
a Chief Compliance Officer of $545 and multiplying by 3 to account
for the expected salary differential.
---------------------------------------------------------------------------

    If the RFRRs are triggered, during a one-year period during
implementation, up to $120MM in costs of CAT implementation and
operation could be shifted from Industry Members to Participants, but
this would not change total costs to industry as a whole from the CAT
NMS Plan.\226\ In the absence of

an approved fee filing, the Commission is unable to precisely estimate
the magnitude of the costs associated with RFRRs that individual
Participants would incur under such a scenario; however, the Commission
believes RFRR costs during any one-year period for individual
Participants are unlikely to exceed $46.4MM for the largest Participant
and $0.4MM for the smallest Participant, and are likely to be
significantly lower than these maximums.\227\ If RFRRs are triggered,
there would be a reduction in exchange profitability and there might be
transitory effects on exchange capital formation because the exchanges
would face additional costs and may not be able to invest in projects
or return profits to shareholders as they would have otherwise.\228\ In
the case of FINRA, which is organized as a nonprofit member
organization, costs from RFRRs could not be passed to FINRA's Industry
Members.\229\ This may affect FINRA's ability to invest in other
projects that could promote investor protection.
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    \226\ The Commission estimates a maximum cost during a Period of
up to one year by making certain assumptions. First, in the CAT NMS
Plan Approval Order, the Commission estimated maximum implementation
costs and annual operating costs for the Central Repository of $65MM
and $55MM respectively; see CAT NMS Plan Approval Order, supra note
4, at Section V.F.1.a. If the Participants were allowed to recover
100% of those costs from Industry Members, if milestones under these
amendments were achieved, and if all implementation costs were
incurred during a single Period, Central Repository costs for a
Period of up to one year would likely be no higher than $65MM + 55MM
= $120MM. In such a scenario, Participants could incur maximum RFRR
costs during a single year of $120MM if they missed the Financial
Accountability Milestone by more than 270 days. Because the first
Period's duration is less than one year, its maximum would be lower
because a full year's operating costs for the Central Repository
would not be incurred.
    \227\ Assuming equity exchanges bore 100% of Participant fees
and using widely reported equity trading volume for February 2019,
and assuming fees were allocated by market share of equity trading
volume, the largest equity venue would incur 38.7% x $120MM =
$46.4MM and the smallest equity venue would incur 0.3% x $120MM =
$0.4MM in RFRR costs. For an example of widely reported equity
trading volume, see the CBOE's compilation of equity trading volume
at http://markets.cboe.com/us/equities/market_statistics/historical_market_volume/. The actual RFRR costs would likely be
significantly lower than these maximums. For example, it is unlikely
that 100% of implementation costs that presumably cover expenses
from pre-implementation through the entire implementation period
would be incurred in a single year, and the Commission preliminarily
believes that some of these costs have already been incurred. This
is a maximum single one-year RFRR cost because the estimated Central
Repository operating cost is an annual figure. During a one-year
implementation Period, the Commission assumes the Central Repository
would incur one year of operating costs. However, when a Financial
Accountability Milestone is missed, the Period may exceed one year
in duration and additional operating costs would be incurred.
Consequently, the implementation Period RFRR cost incurred by the
Participants would be a function of the length of the delay and the
actual operating costs incurred by the Plan Processor during that
implementation Period.
    \228\ See Part IV.D.3. infra.
    \229\ All of FINRA's members are Industry Members, while most
but not all Industry Members are FINRA members.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed amendments
are likely to have indirect costs to some Participants, Industry
Members, and service bureaus due to acceleration of CAT implementation
costs relative to the current delayed timeline. In the CAT NMS Plan
Approval Order, the Commission estimated CAT implementation costs for
Participants, Industry Members, and service bureaus that provide
certain order handling, connectivity, and clearing services to Industry
Members.\230\ These three groups may have indirectly benefited from
implementation delays as implementation costs were deferred, while the
benefits to investors anticipated by the CAT NMS Plan Approval Order
have likewise been deferred. To the extent that the proposed amendments
reduce those delays, the unintended cost deferral to these groups will
be ended.
---------------------------------------------------------------------------

    \230\ See CAT NMS Plan Approval Order, supra note 4, at Section
V.F.1.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the amendments could
result in an inefficiently accelerated implementation of the CAT, which
could potentially increase overall CAT implementation costs to
Participants, Industry Members, and ultimately to investors.\231\
Because the Participants would have financial accountability for
meeting the Financial Accountability Milestones, the Participants might
choose to incur additional and inefficient costs to avoid missing
deadlines because the magnitude of the additional costs incurred to
meet the Financial Accountability Milestone dates may be less than the
magnitude of the reduction in expenses the Participants could recover
due to the RFRRs outlined in these amendments.\232\ If the Participants
do not exceed Financial Accountability Milestone dates by more than 180
or 270 days, as applicable, Industry Members would share in funding
some of those additional costs.\233\ Because the proposed amendments
have provisions that improve transparency, these effects could be
magnified to the extent that the Participants seek to avoid missing
Implementation Milestones required in the amendments. Furthermore,
accelerated implementation might result in inefficient implementation
decisions. For example, Participants could deliver less help desk
functionality, reporter portal features, or infrastructure design so
that they can avoid missing a Financial Accountability Milestone
deadline. While these reductions in functionality might still meet the
requirements of the CAT NMS Plan, they might make the CAT less
effective or efficient for reporters and users of CAT data than it
would have been with greater functionality. The costs of such
reductions in functionality may accrue primarily to Industry Members or
users of CAT data.
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    \231\ See CAT NMS Plan Approval Order, supra note 4, at Section
V.F.2.a.
    \232\ For example, Participants might incur $50MM in additional
costs to avoid missing a Financial Accountability Milestone date by
a week and incurring resultant RFRR costs of $30MM. Because the
$50MM cost would be partially funded by Industry Members, incurring
this expense might be financially rational for the Participants.
Such an acceleration may be inefficient in the sense that
accelerating implementation by one week might not provide benefits
to industry and investors that warrant an additional $50MM in
investment in the CAT. Inefficient acceleration might also result in
missed opportunities for value-added features of CAT. For example,
inefficient acceleration of implementation might cause the
Participants to delay implementing an effective Help Desk, or to
defer improvements to the reporters' portal.
    \233\ The CAT NMS Plan Approval Order contemplated a fee
structure in which costs of developing, implementing, and operating
the Central Repository would be shared between Participants and
Industry Members. See CAT NMS Plan Approval Order, supra note 4, at
Section IV.F.1.
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    The Commission preliminarily believes that the likelihood of an
inefficiently accelerated CAT implementation is low for two reasons.
First, the deadlines for Financial Accountability Milestones are
aligned with the most recent timelines published by Participants.
Therefore the Commission preliminarily believes that the dates are
feasible and thus are unlikely to pressure the Participants to
inefficiently accelerate CAT implementation to avoid triggering RFRRs.
Second, the financial accountability measures in the proposed
amendments are designed in a manner that should mitigate this risk
because RFRRs continue to increase as delays persist, until the fee
recovery rate becomes zero. Specifically, the costs associated with
missing a deadline for a Financial Accountability Milestone by a short
period (for example, less than 90 days) would be less than the costs
associated with missing a deadline for a Financial Accountability
Milestone by a longer period (for example, more than 90 days).
Consequently, Participants may be less likely to inefficiently
accelerate implementation to avoid RFRRs because the RFRRs reduce
rather than eliminate the Participants' ability to recoup costs from
Industry Members

for delays of less than 270 (or in the case of Period 1,180) days.
    The Commission also notes that additional indirect costs may accrue
to market participants due to exchanges leaving the market for trading
services, which could result from the impact of the amendments on
competition, as discussed further below.\234\ Market participants face
certain fixed costs in establishing connectivity to exchanges and
adapting their trading strategies for changes in available trading
venues. Consequently, competitor exits from the market for exchange
services may be costly to other market participants who must update
trading strategies to reflect what trading venues are available. The
Commission believes it is unlikely that such costs will accrue because
the failure of exchanges due to the financial accountability provisions
in the proposed amendments is unlikely. The Commission preliminarily
believes that exchanges that might require additional capital to meet
their financial obligations under the CAT NMS Plan could acquire it
through financial markets because exchanges are generally profitable
and investors in exchanges are likely to view costs from RFRRs as one-
time events that do not affect long-term exchange profitability. Also,
in many cases, exchanges are part of a larger exchange group that could
provide additional capital if needed.\235\
---------------------------------------------------------------------------

    \234\ See Part IV.D.2. infra.
    \235\ See Part IV.D.2. infra for a more in depth discussion of
the competitive effects of the proposed amendments.
---------------------------------------------------------------------------

    Finally, while triggering the RFRRs in these amendments would cause
Participants to accrue additional costs because they could not recover
these costs from Industry Members, there would be a corresponding
financial benefit to Industry Members because they would not have to
pay those costs. Consequently, the cost transfers from the RFRRs in the
proposed amendments do not impose a net cost on industry as a whole.
The Participants could attempt to shift the costs to Industry Members
through changes to their broader fee structures. However, changes to
the Participants' fees would need to be filed with the Commission.

D. Impact on Efficiency, Competition, and Capital Formation

1. Efficiency
    The Commission preliminarily believes that the proposed amendments
will have an effect on efficiency. In general, the Commission
preliminarily believes that the proposed amendments will improve the
efficiency of Plan implementation activities by Industry Members.
However, the Commission preliminarily believes that the financial
accountability provisions could also potentially reduce the efficiency
of Plan implementation by the Participants by incentivizing them to
delay certain later-period implementation activities if Participants
believe there is a significant risk of missing a Financial
Accountability Milestone date in an earlier period.
    The Commission preliminarily believes that the proposed amendments
will improve the efficiency of Industry Member implementation of CAT
reporting. As discussed previously, uncertainty and delays in CAT
implementation and OATS retirement could have costs for broker-
dealers.\236\ The financial accountability and public disclosures
required by the proposed amendments should provide more certainty to
Industry Members regarding when they will be required to begin
reporting data to CAT and when they will be able to retire duplicative
reporting systems. This should aid Industry Members in efficiently
developing and implementing their CAT data reporting systems, planning
the maintenance and eventual retirement of duplicative systems, and
allowing them to make adjustments to those plans as needed.
---------------------------------------------------------------------------

    \236\ See Part IV.A.1. supra.
---------------------------------------------------------------------------

    However, the Commission preliminarily believes that the financial
accountability provisions could incentivize Participants to
inefficiently delay certain later-period implementation activities if
Participants believe there is a significant risk of missing a Financial
Accountability Milestone date in an earlier Period. To illustrate,
during Period 1, in the absence of the proposed amendments, it may be
efficient for Participants to invest in activities that enable meeting
Financial Accountability Milestones in Periods 2, 3, and 4. If,
however, Participants believe that they likely will not meet the Period
1 Financial Accountability Milestone and will thus likely trigger an
RFRR during Period 1, Participants may defer investing in Period 2, 3,
and 4 activities during Period 1 because investments that enable
meeting later Period Financial Accountability Milestones would be
subject to a Period 1 RFRR because the expenses were incurred during
Period 1. Furthermore, some Participants might delay financial
investment in some implementation activities if additional costs from
triggering RFRRs provoke financial distress. The Commission
preliminarily believes this outcome is unlikely because the Commission
preliminarily believes that exchanges that might require additional
capital to meet their financial obligations under the CAT NMS Plan
could acquire it through financial markets. Exchanges are generally
profitable, and investors in exchanges are likely to view costs from
RFRRs as one-time events that do not affect long-term exchange
profitability.\237\ The Commission preliminarily believes that the
structure of the financial accountability provisions may attenuate the
risk of inefficient delay of financial investment in later Period
Financial Accountability Milestones to some degree because delaying
such investment is likely to increase the risk of triggering an RFRR in
a later Period. This would make it relatively more costly to delay
later Period implementation investments when facing potential RFRRs for
those periods.
---------------------------------------------------------------------------

    \237\ See Part IV.C.4. infra.
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2. Competition
a. Competitive Baseline
    The Commission described the structure of the market for trading in
NMS securities, as of that time, in the Notice and the CAT NMS Plan
Approval Order.\238\ While the Commission's analysis of the state of
competition in the Notice is fundamentally unchanged, the market for
trading services in options and equities currently consists of 23
national securities exchanges, all but one of which are Plan
Participants,\239\ as well as off-exchange trading venues, including
broker-dealer internalizers, and 31 ATSs,\240\ which are not Plan
Participants. The exchanges are currently controlled by 7 separate
entities; three of these operate a single exchange.\241\
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    \238\ See CAT NMS Plan Approval Order, supra note 4, at Section
V.G.1.
    \239\ LTSE is not yet a Participant to the CAT NMS Plan.
    \240\ As of 8/26/19 there are 31 NMS Stock ATSs operating
pursuant to an initial Form ATS-N. A list of NMS Stock ATSs,
including access to initial Form ATS-N filings that are effective,
can be found on the Commission website at https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm.
    \241\ Cboe Global Markets, Inc. controls BYX, BZX, C2, EDGA,
EDGX, and CBOE; Miami Internal Holdings, Inc. controls Miami
International, MIAX Emerald, and MIAX PEARL; NASDAQ, Inc. controls
BX, GEMX, ISE, MRX, PHLX, and Nasdaq; Intercontinental Exchange,
Inc. controls NYSE, Arca, American, Chicago, and National. The three
entities that control a single-exchange are IEX Group which controls
IEX, a consortium of broker-dealers which controls BOX, and Long
Term Stock Exchange, Inc. which controls LTSE.
---------------------------------------------------------------------------

b. Competitive Effects
    The Commission preliminarily believes that the proposed amendments
might have competitive effects on the

market for NMS security trading services and the market for equity
listings. In the case that RFRRs are triggered, one or more exchanges
might exit these markets, although the Commission preliminarily
believes this is unlikely.\242\ The Commission preliminarily believes
that triggering an RFRR could also temporarily affect competition
between exchanges and ATSs and broker-dealer internalizers, but does
not believe the effects will be significant.
---------------------------------------------------------------------------

    \242\ A potential entrant to the market might be marginally more
likely to delay entry due to the proposed amendments, but given that
a new entrant's fee burden would be a function of its market share,
presumably a new entrant would begin with a relatively low market
share. The Commission, therefore, does not preliminarily believe
that an entity considering forming an exchange would decline to do
so because of additional uncertainty about CAT NMS Plan financial
responsibilities. Consequently, the Commission preliminarily
believes that the proposed amendments are unlikely to have effects
on innovation by new entrants.
---------------------------------------------------------------------------

    The Commission preliminarily believes that is it unlikely that
exchanges that are part of an exchange group would exit the market for
NMS security trading services or equity listings if the RFRRs in the
proposed amendments are triggered because the larger exchange group
could provide additional capital to an exchange that would otherwise
exit the market. Such costs are one-time events and are unlikely to
change an exchange operator's assessment of the long-term economics of
operating the exchange.\243\
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    \243\ The Commission preliminarily believes that the license to
operate an exchange is a valuable asset even when the extant
exchange has low volume because exchange families and new entrants
sometimes acquire both high and low volume exchanges. See, e.g.,
https://ir.theice.com/press/press-releases/all-categories/2018/07-18-2018-133237540 and http://cdn.batstrading.com/resources/press_releases/CBOE-Holdings-Announces-Close-of-Acquisition-of-Bats-Global-Markets-FINAL-3-1-17.pdf. As long as the RFRR-related costs
incurred by an exchange are less than the cost of registering and
implementing a new exchange from scratch, exchange families with
adequate financial resources are likely to invest additional capital
in an exchange that would otherwise fail due to the RFRRs.
    The Commission recognizes that under the proposed amendments,
exchanges do not incur RFRR costs in isolation; if one exchange
incurs RFRR costs, all exchanges incur RFRR costs. Consequently, an
exchange family might need to further capitalize multiple exchanges.
The Commission believes failure of entire exchange groups is
unlikely because the Commission preliminarily believes that exchange
groups that might require additional capital to meet their financial
obligations under the Plan could acquire it through financial
markets because exchanges are generally profitable and investors in
exchanges are likely to view costs from RFRRs as one-time events
that do not affect long-term exchange profitability.
---------------------------------------------------------------------------

    However, for smaller exchanges that are not part of a larger
exchange family that could provide additional capital, the Commission
recognizes that it is possible that such exchanges could be forced to
exit the market, although the Commission believes this is unlikely to
occur. Specifically, the Commission believes it is unlikely that
exchanges would be forced to leave the market because the Commission
preliminarily believes that exchanges that required additional capital
to meet their financial obligations under the CAT NMS Plan would be
able to secure it through financial markets.
    Even if an exchange were to exit, the Commission does not believe
this would significantly impact competition in the market for exchange
trading services or the market for equity listings because these
markets are served by multiple competitors. Consequently, demand for
these services in the event of the exit of a competitor is likely to be
swiftly met by existing competitors. The Commission recognizes that
small exchanges may have unique business models that are not currently
offered by competitors to these independent exchanges, but the
Commission preliminarily believes a competitor could create similar
business models if demand were adequate, and if they did not do so, it
seems likely new entrants would do so if the exiting exchange were
otherwise profitable.
    If the RFRRs are triggered, the Commission preliminarily believes
that it could temporarily affect competition between exchanges and ATSs
and broker-dealer internalizers. However, the Commission preliminarily
believes that these effects would not be significant. As discussed
previously, in the event RFRRs are triggered, up to $120MM in costs
could be shifted from Industry Members to Participants in a one-year
Period.\244\ This increase in costs to Participants could have
transient negative effects on Participants' ability to invest in their
exchanges.\245\ The corresponding cost savings to Industry Members
could have transient positive effects on Industry Members' abilities to
invest in their ATSs or internalization operations, which could include
temporarily reducing fees in order to attract order flow. Although this
may temporarily provide ATSs and broker-dealer internalizers with a
competitive advantage over exchanges in attracting order flow, the
Commission preliminarily believes that these effects will not be
significant because broker-dealers make strategic decisions to expose
orders on exchanges or route orders to ATSs or internalizers based on
other factors, such as order characteristics and temporary market
conditions, that will not be impacted by the proposed amendments.
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    \244\ See Part IV.C. supra.
    \245\ See Part IV.D.3. infra.
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3. Capital Formation
    The Commission preliminarily believes the amendments will have
negligible mixed effects on capital formation. The Commission
preliminarily believes that it is possible the amendments' improvements
to investor protections may allow improvements to capital formation
anticipated in the CAT NMS Plan Approval Order to be realized sooner
than they would be in the absence of the proposed amendments. As
discussed previously, delays in implementation of the CAT NMS Plan have
delayed investors' realization of improvements to investor protection
anticipated in the CAT NMS Plan Approval Order. By incentivizing the
Participants to implement the CAT NMS Plan expeditiously, the
amendments may permit investors to realize these benefits sooner than
they would otherwise. These improvements to investor protections may
improve capital formation.\246\ However, some costs of the amendments--
particularly the direct costs--are likely to be passed on to
investors.\247\ Because these are not ongoing costs, the Commission
preliminarily believes any negative effects on capital formation will
be transitory. If RFRRs are triggered, the exchanges could face
significant costs associated with expenses that could not be shared
with Industry Members. These additional costs to Participants would be
offset by savings by Industry Members. The Commission preliminarily
believes these transfers between Participants and Industry Members are
unlikely to affect capital formation because while the costs to
Participants might be passed on to investors through relatively higher
prices to transact on exchanges for broker-dealers that would then pass
these costs on to their customers, the savings to Industry Members
might be passed on by broker-dealers to their customers as well, so the
net impact to investors should be negligible.
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    \246\ See CAT NMS Plan Approval Order, supra note 4, at Section
V.G.1.
    \247\ Costs associated with triggering RFRRs would not increase
the cost of the CAT, but rather constitute a transfer between
Participants and Industry Members. The Commission preliminarily
believes these costs are unlikely to be directly transferred to
investors, but notes competitive effects of these transfers in Part
IV.D.2. supra.
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    If RFRRs are triggered, exchanges could experience short-term,
transitory negative effects on exchange capital formation because the
exchanges would

face additional costs and may not be able to invest in projects or
return profits to shareholders that they would otherwise. However, the
Commission preliminarily believes costs from RFRRs would be viewed as
transitory by investors because they would end with full CAT
implementation. Consequently, the Commission preliminarily believes
that the amendments would not permanently affect investors' assessment
of expected profitability for exchanges, and thus would not reduce this
capital formation long-term.

E. Alternatives

1. Fixed versus Relative Financial Accountability Milestone Dates
    The Commission considered an alternative approach that would use
relative Financial Accountability Milestone dates in a scenario when a
Financial Accountability Milestone was not met on schedule. Under the
proposed amendments, Financial Accountability Milestone dates are fixed
calendar dates. Under this alternative approach, the duration of the
time period between two Financial Accountability Milestone dates would
be static but the Financial Accountability Milestone dates would be
relative. Thus, if a Financial Accountability Milestone were not
achieved on schedule, the next Financial Accountability Milestone date
would be delayed such that the duration of Periods between Financial
Accountability Milestone dates was unchanged.\248\ For example, if
sequential Financial Accountability Milestone dates are April 30, 2020
and December 31, 2020, achieving the first Financial Accountability
Milestone on May 31, 2020 would automatically reset the next Financial
Accountability Milestone date to January 31, 2021, leaving the duration
of the period between the two dates unchanged.
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    \248\ The alternative could be structured such that upon the end
of a Period, the next Financial Accountability Milestone date would
become the later of the Financial Accountability Milestone date in
the amendments or the relative date from this alternative approach.
This approach would prevent the subsequent relative Financial
Accountability Milestone date from becoming earlier in the event
that the Participants achieve a Financial Accountability Milestone
ahead of schedule. This would avoid the problem of incentivizing the
Participants to delay Financial Accountability Milestone achievement
to avoid accelerating Financial Accountability Milestone dates, and
would mitigate any risk Industry Members would have from
accelerating Financial Accountability Milestone dates.
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    The primary economic impact of this approach relative to the
proposal is that it avoids a risk inherent in the fixed Financial
Accountability Milestone date approach of the proposal. Under the fixed
Financial Accountability Milestone date approach, if the Participants
encounter a delay early in the implementation process that causes them
to miss a Financial Accountability Milestone date by a significant
margin, it may become more difficult for them to meet future Financial
Accountability Milestone dates. Under such a scenario, the proposed
amendments may lose some of their incentive value because the
Participants may not be able to avoid triggering at least some of the
RFRRs after missing an early Financial Accountability Milestone date.
Under the alternative approach with relative Financial Accountability
Milestone dates, if the Participants miss a deadline early in the
implementation timeline and trigger the RFRRs, they would not
necessarily find later deadlines so difficult to meet that they lose
their economic incentive to meet the later Financial Accountability
Milestone dates.
    This alternative approach has two significant costs relative to the
proposed amendments. First, in a case where a significant delay arises
in an early implementation Period such that financial RFRRs are
triggered during that Period, the Participants may be incentivized to
delay meeting the Period-ending requirement in order to give themselves
more time to achieve later-Period Financial Accountability Milestones
in order to decrease their risk of triggering RFRRs in later Periods.
Such a scenario could significantly delay the retirement of OATS, which
would be costly to Industry Members if it extended their period of
duplicative reporting.\249\ Under both the proposed amendments and in
this alternative, the structure of the financial accountability
provisions might mitigate but not eliminate this risk because RFRRs
increase over time; consequently, if a Financial Accountability
Milestone is missed and an RFRR is triggered, Participants should
remain incentivized to implement in an expeditious manner to avoid
triggering a higher RFRR during the same Period of implementation.
However, under the alternative approach, the Financial Accountability
Milestone date for OATS retirement could be pushed back due to missing
an earlier Financial Accountability Milestone, which could necessitate
a longer period of costly duplicative reporting for Industry Members.
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    \249\ See CAT NMS Plan Approval Order, supra note 4, at Section
V.F.2.b.
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    The second likely additional cost relative to the proposal is that
the alternative approach would make the ultimate CAT implementation
timeline less certain than in the proposal, because delays in early
Periods would push back implementation dates for later Periods of
implementation. However, under the proposed approach, missing an early-
Period Financial Accountability Milestone could also result in delays
in meeting later Financial Accountability Milestones, and because the
potential length of future delays would not be defined by the structure
of the proposed amendments, they would be less transparent to Industry
Members. However, under the proposed amendments, realized delays would
be documented in Quarterly Progress Reports and thus should aid
Industry Members in updating expectations on implementation timelines.
2. Different Timelines for Onset of RFRRs
    The Commission considered alternative approaches with different
Financial Accountability Milestone dates. These approaches would have
certain additional benefits and costs as compared to the proposal. For
example, earlier Financial Accountability Milestones might accelerate
the time at which investors realize the benefits of the CAT, but would
increase the likelihood that the implementation of CAT would be
accelerated to a degree that is inefficient.\250\ Alternatively,
delaying Financial Accountability Milestone dates would increase the
time that investors do not realize the benefits of CAT and that
Industry Members experience uncertainty that increases their
implementation costs, but might avoid the risk of inefficiently
accelerating the implementation of CAT.\251\ The Commission further
notes that alternative milestone dates that are not generally aligned
with dates published by or discussed with the Participants are less
likely to reflect realistic expectations for the Participants in
implementing the CAT.\252\
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    \250\ See Note 232, supra.
    \251\ See Part IV.C. supra.
    \252\ See Part II.B.1. supra.
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3. Alternate Magnitudes of RFRRs
    The Commission considered alternative approaches with different
levels of RFRRs. Under the proposed amendments, for each period of up
to 90 days by which the Participants miss Financial Accountability
Milestone dates, they would trigger RFRRs such that they would be
allowed to recover 25% less of the CAT costs they would otherwise
recover from Industry

Members. Alternative approaches could have higher or lower marginal
RFRRs.
    The Commission preliminarily believes that alternative approaches
with higher marginal RFRRs (allowing the Participants to recover a
lower share of CAT costs from Industry Members when RFRRs are
triggered) would potentially further incentivize the Participants to
meet Financial Accountability Milestone deadlines, but would also
increase the risk of inefficient acceleration of CAT
implementation.\253\
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    \253\ See Note 233, supra.
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    The Commission preliminarily believes that alternative approaches
with lower RFRRs (allowing the Participants to recover a higher share
of CAT costs from Industry Members when RFRRs are triggered) would
decrease the incentives Participants have to meet Financial
Accountability Milestone deadlines, but would reduce the risk of
inefficient acceleration of CAT implementation.

F. Request for Comment on the Economic Analysis

    The Commission is sensitive to the potential economic effects,
including the costs and benefits, of the proposed amendments to the CAT
NMS Plan. The Commission has identified above certain costs and
benefits associated with the proposal and requests comment on all
aspects of its preliminary economic analysis. The Commission encourages
commenters to identify, discuss, analyze, and supply relevant data,
information, or statistics regarding any such costs or benefits. In
particular, the Commission seeks comment on the following:
    33. Do you believe the Commission's analysis of the potential
effects of the proposed amendments to the CAT NMS Plan is reasonable?
Why or why not? Please explain in detail.
    34. Do you believe the Commission's description of the state of
implementation of the CAT NMS Plan is accurate? Why or why not? Please
explain in detail.
    35. Do you believe that the multiple delays in implementation of
the CAT NMS Plan has led to uncertainty surrounding CAT implementation
that may be causing Industry Members to incur costs they would not have
incurred had the CAT been completed on its original schedule? Why or
why not? Please explain in detail.
    36. The structure of the RFRRs provides that after missing a
Financial Accountability Milestone by 270 days (or 180 days as
applicable), Participants would not be allowed to recover any
implementation costs for the delayed implementation Period. For the
remainder of the implementation Period, Participants would continue to
incur expenses associated with the Plan Processor's operation of the
Central Repository, and would not be able to share those expenses with
Industry Members. Do you believe the Participants' inability to share