a direct benefit resulting from a lower Error Rate. Further, the error
rates in OATS may not be comparable to the Error Rates in CAT Data
because the algorithm that identifies errors in CAT Data is unlikely to
be identical to the algorithm that identifies errors in OATS. In
particular, the Plan requires some types of validation checks on CAT
Data that OATS data does not go through. These additional validation
checks will help to ensure the accuracy of information types not
currently collected by OATS such as Customer Account Information, Firm
Designated

ID, and options information, or to ensure the accuracy of information
necessary for the order lifecycle linking process.\1262\ Consequently,
the Commission cannot be sure of the specific CAT Error Rate that would
accelerate retirement of OATS. In addition, the Commission does not
have cost estimates for different maximum Error Rates because such
information was not provided in the CAT NMS Plan.
---------------------------------------------------------------------------

    \1262\ See CAT NMS Plan, supra note 3, at Appendix C, Sections
A.1(a)(iii) and A.3(a) and Appendix D, Section 7.2 for a discussion
of the types of required validations of CAT Data.
---------------------------------------------------------------------------

    While reducing error rates may have these potential benefits, the
Commission recognizes that it would also come at a cost. In particular,
reducing Error Rates could increase the implementation and ongoing
costs incurred by CAT Reporters and the Central Repository as compared
to costs estimated in the Plan, as filed. To achieve lower Error Rates,
some CAT Reporters might have to run additional validation checks on
their data before sending their data to the Central Repository. Such
CAT Reporters would incur additional costs to code and test any
additional validation checks prior to implementation. CAT Reporters
might also have to monitor and adjust their validation checks to
respond to Error Rate reports from the Central Repository, incurring
additional ongoing costs. However, the CAT Reporters already achieving
lower Error Rates might not require additional checks, adjustments, or
monitoring. Additionally, the Commission preliminarily believes that
costs incurred by CAT Reporters to reduce error rates prior to sending
data to the Central Repository may ultimately result in lower costs
associated with correcting errors after the data is sent. The
Commission also notes that the costs incurred would depend in part on
the format in which data is reported to the Central Repository, which
has yet to be determined. If a solution is chosen that requires the
reformatting of data, and this reformatting results in errors, then the
costs could be higher. Conversely, a solution that does not require
data reformatting could result in a lower Error Rate with lower costs
to CAT Reporters.
    Additionally, the Plan contains provisions that require the Plan
Processor to monitor and address Error Rates. For example, the Plan
Processor is required to notify each CAT Reporter that exceeds the
maximum Error Rate, and provide the specific reporting requirements
that they did not fully meet. Requiring a lower Error Rate could
increase the costs of these provisions, as compared to the costs
estimated in the Plan as filed, because more CAT Reporters would exceed
the Error Rate at which penalties are levied by the Plan Processor.
d. Error Correction Timeline
    The Commission is soliciting comment on an alternative error
correction timeline to that proposed in the CAT NMS Plan. The CAT NMS
Plan proposes a deadline of T+3 for submission of corrected data to the
Central Repository.\1263\ The CAT NMS Plan also discusses
recommendations from FIF and SIFMA to impose a day T+5 deadline, which
is the current standard for OATS.\1264\ The Participants state in the
CAT NMS Plan that they believe it is important to retain the day T+3
deadline in order to make data available to regulators as soon as
possible.\1265\
---------------------------------------------------------------------------

    \1263\ See CAT NMS Plan, supra note 3, at Appendix C, Section
A.1(a)(iv).
    \1264\ Id.
    \1265\ Id.
---------------------------------------------------------------------------

    The Commission is soliciting comment on whether the CAT NMS Plan
should impose a day T+5 deadline rather than the day T+3 deadline. In
comment letters submitted to the Participants, FIF and SIFMA maintain
that the day T+3 deadline may not be feasible and would prove costly to
market participants.\1266\ The alternative of a day T+5 deadline could
reduce the costs relative to the CAT NMS Plan for CAT Reporters. The
Commission preliminarily believes that the delays in regulatory access
from a day T+5 deadline would significantly reduce regulators' ability
to conduct surveillance and slow the response to market events relative
to the CAT NMS Plan. However, the Commission also believes that day T+5
error correction may reduce costs to industry relative to the CAT NMS
Plan, although the Commission is unaware of any cost estimates that
have been provided to date.
---------------------------------------------------------------------------

    \1266\ See Letter from Manisha Kimmel, Managing Director, FIF,
to the Participants, dated November 19, 2014, available at http://www.catnmsplan.com/industryfeedback/p601972.pdf; Industry
Recommendations for the Creation of a Consolidated Audit Trail
(CAT), SIFMA, March 28, 2013, available at http://www.catnmsplan.com/industryfeedback/p242319.pdf.
---------------------------------------------------------------------------

e. Funding Model
    The mechanism by which CAT fees are allocated is important because
it can potentially disadvantage particular business models. Although
the Plan does not discuss the final details of the CAT funding model,
it does provide some details, including a set of funding principles
that the Participants have discussed with the Development Advisory
Group. The Commission is soliciting comment on alternative mechanisms
for allocating fees across Execution Venues and across Industry
Members.
    The CAT NMS Plan presents details regarding an allocation of costs
between the Execution Venues and the other Industry Members (i.e.,
broker-dealers), but does not detail the proportions of fees to be
borne by each group. Under the CAT NMS Plan, fees would be tiered by
activity levels, with market participants within a given tier incurring
a fixed fee.\1267\ In the case of Execution Venues (exchanges and
ATSs), market share of share volume would determine the tier of the
Execution Venue. In the case of broker-dealers, fees would be allocated
by message traffic. The Commission is cognizant that ATSs are operated
by broker-dealers, complicating this division of fees between broker-
dealers and Execution Venues. This is discussed further below.
---------------------------------------------------------------------------

    \1267\ For a discussion of the economic effect of the tiered
structure, see IV.F.4.c, supra.
---------------------------------------------------------------------------

(1) Unified Funding Models
    The Commission is soliciting comment on several unified funding
models as alternatives to the Plan's bifurcated funding model. One of
the alternative funding models the Commission is soliciting comment on
is a unified funding model in which Central Repository costs are
allocated across all market participants (including Execution Venues)
by message traffic. The Commission expects that message traffic will be
a primary cost driver for the Central Repository, because transactional
volume (which is cited by the Plan as a primary cost driver for the
Central repository) is highly correlated with message traffic.
Consequently, assessing CAT costs on market participants by message
traffic may have the benefit of aligning market participants'
incentives with the Participants' stated goal of minimizing costs.
However, the Commission is also aware that while a broker-dealer's
choice of business model is likely to determine its level of message
activity, the majority of an exchange's message traffic is passive
receipt of quote updates.\1268\ Because quotes must be updated on all
exchanges when prices change, exchanges with low market share are
likely to have more message

traffic (incurring CAT fees) per executed transaction (generating
revenue).\1269\ Consequently, a model that charges exchanges for the
passive receipt of messages from broker-dealers is likely to
disadvantage the smaller exchanges relative to a model that charges for
market share of executions.
---------------------------------------------------------------------------

    \1268\ Using MIDAS data, Commission staff analyzed the number of
equity exchange proprietary feed messages and trades during the week
of October 12, 2015. The message per trade ratio varied across
exchanges from 38.46 to 987.17, with a median of 57.21.
    \1269\ Commission staff data analysis confirms this for the
smallest exchanges. Except for the smallest exchanges, the trade to
message ratios range from about 0.016 trades for every quote update
to about 0.026 trades for every quote update and appear constant
across market share levels. However, the smallest exchanges by
market share have only about 0.001 trades for every quote update to
about 0.009 trades for every quote update.
---------------------------------------------------------------------------

    The Commission is also soliciting comment on an alternative
approach to reporting market maker quotations on exchanges that could
address this concern. In this approach, market makers (both equity and
options) would not need to report their quotation updates. Exchanges
(both equity and options) would report quotation sent times (as
detailed in the Plan with regard to Options Market Makers and the
Exemption Request \1270\). Exchanges would not be assessed message
traffic fees for these quotation updates; the broker-dealers who sent
the quotes would be assessed for this message traffic. All other
message traffic, regardless of which market participant initiated it,
would be assessed fees associated with CAT using a common rate formula.
---------------------------------------------------------------------------

    \1270\ See Exemption Order, supra note 18, at 7-8.
---------------------------------------------------------------------------

    The Commission is soliciting comment on this alternative for a
number of reasons. First, it ties CAT costs to a primary driver of the
magnitude of Central Repository costs: message traffic.\1271\ Second,
it substantially reduces the number of messages stored in the Central
Repository. Third, it avoids disadvantaging smaller exchanges whose
message traffic may be relatively large compared to their execution
volume. Finally, this alternative avoids bifurcated fee approaches that
may cause one Execution Venue to be relatively cheaper than another due
to the manner in which CAT fees are assessed and may cause conflicts of
interest for broker-dealers routing customer orders.\1272\ However,
this alternative assesses CAT fees based on messages rather than the
revenue-generating activity of trades. This may provide market
participants with incentives to change their business models to reduce
CAT fees, which could lead to reduced quotation activity that could be
detrimental to market liquidity levels. Furthermore, because the vast
majority of message activity originates with broker-dealers, this
approach necessarily shifts most of the ultimate CAT funding burden to
broker-dealers.
---------------------------------------------------------------------------

    \1271\ See Section IV.F.1.a, supra, stating that transactional
volume is a primary driver of the costs of the Central Repository.
The Commission preliminarily believes that transactional volume is
highly correlated with message traffic.
    \1272\ For example, if the CAT funding model were set to make
ATS trades significantly more costly relative to exchange trades,
the exchanges might benefit from increased market share because ATSs
might be compelled to increase their access fees to offset the
proportionately higher CAT charges that they would incur. In the
extreme, some ATSs might cease operations or seek to register as
exchanges. Most ATSs do not disseminate quotation information;
exchanges are required to do so. Reorganizing an ATS as an exchange
therefore involves significant changes to its business model.
Consequently, the Commission believes it unlikely that many ATSs
would register as exchanges to avoid proportionately higher CAT
charges. If certain types of trades have lower costs when their
trades execute on an ATS, their trading costs would increase if they
are forced onto exchanges. If some trades would not happen in the
absence of an ATS, this would drive down overall trading volumes (as
opposed to a shift from ATS to exchange). Lower overall trading
volumes would be considered welfare-reducing, as they indicate
foregone gains from trade.
---------------------------------------------------------------------------

    The Commission also is soliciting comment on a second alternative
approach to CAT funding, a unified funding approach where the tiers in
the funding model are based on market share of share volume. Under this
approach, all market participants (both exchanges and broker-dealers)
would qualify for a tier based on reported share volumes. Share volume
would count equally toward the tier regardless of the Execution Venue
selected by the broker-dealer originating the order. However, this
approach does not align the costs of operating and maintaining the
Central Repository, which would largely depend on message traffic, with
the fees charged to market participants. Furthermore, it is possible
that some Execution Venues could compete for order flow by not passing
this fee on to their customers, generating the same limitations as
discussed above for the funding model in the Plan.\1273\
---------------------------------------------------------------------------

    \1273\ See Section IV.F.4.c, supra.
---------------------------------------------------------------------------

    A third alternative would be for the funding model to impose fees
on every individual trade instead of imposing a fixed fee by tier. This
approach has several benefits. First, the Commission preliminarily
believes that implementation costs for this approach are likely to be
lower than other alternatives because infrastructure already exists to
levy fees on each trade (this is the mechanism by which Section 31 fees
are levied).\1274\ Second, it ties fees to the revenue-generating
activity of trading, rather than quoting activity, which results in
those more likely to afford high fees paying the higher fees. Quoting
activity provides liquidity to the market, but often does not
necessarily result in an execution that can bring revenue to the market
participant placing the quote; consequently, levying CAT fees on trades
avoids making a generally desirable activity (posting liquidity) more
costly.\1275\ Third, it avoids the problems that may accompany a
bifurcated approach to CAT cost allocation. Because the fee is levied
regardless of where the trade occurs, it limits incentives of market
participants to route to exchanges to avoid message traffic fees within
broker-dealers or to avoid exposing an order in multiple venues to try
to find non-displayed liquidity. These liquidity-seeking activities
might reduce a client's trading costs, but they also potentially incur
message traffic fees, creating a conflict of interest for broker-
dealers.
---------------------------------------------------------------------------

    \1274\ Under Section 31 of the Act, 15 U.S.C. 78ee, and Rule 31
thereunder, 17 CFR 240.31, SROs such as FINRA and the national
securities exchanges must pay transaction fees to the SEC based on
the volume of securities that are sold on their markets. These fees
are designed to recover the costs incurred by the government,
including the SEC, for supervising and regulating the securities
markets and securities professionals. The SROs have adopted rules
that require their broker-dealer members to pay a share of these
fees. Broker-dealers, in turn, may impose fees on their customers
that provide the funds to pay the fees owed to their SROs. See SEC,
Section 31 Transaction Fees (September 25, 2013), available at
http://www.sec.gov/answers/sec31.htm.
    \1275\ Some quoting behavior may be costly to the market, for
example spoofing or layering. This analysis assumes that message
traffic fees associated with this undesirable behavior would not be
sufficient to reduce that behavior. If that assumption is false,
funding models that assign fees to quotes have the additional
benefit of reducing disruptive activity. The Commission
preliminarily believes that the benefits of reducing disruptive
quoting activity via levying fees on quotes would not justify the
costs of reducing beneficial quoting activity through the same fees.
---------------------------------------------------------------------------

    Assessing fees directly on trades entails certain costs as well.
First, it does not provide incentives for market participants to limit
their message traffic, which is a primary cost-driver for the Central
Repository. Second, it does not provide the benefits of a tiered
approach, which the CAT NMS Plan lists as including transparency,
predictability and ease of calculation.\1276\
---------------------------------------------------------------------------

    \1276\ See CAT NMS Plan, supra note 3, at Appendix C, Section
B.7(b)(v)(B).
---------------------------------------------------------------------------

(2) Bifurcated Funding Models
    The Commission is also soliciting comment on alternatives to the
funding model proposed in the CAT NMS Plan that would also be
bifurcated. One alternative would be to allocate CAT costs to broker-
dealers by market share of share volume while retaining the Plan's
funding model for Execution

Venues.\1277\ A benefit of this alternative would be to avoid
disincentives to liquidity provision operations, particularly for
infrequently traded securities and high volatility securities. A
disadvantage of this approach would be that it does not align the fees
charged to a CAT Reporter with the costs those CAT Reporters impose on
the Central Repository in terms of message traffic, potentially
resulting in disproportionate charges to CAT Reporters because high
message traffic broker-dealers would pay no more than low message-
traffic broker-dealers with the same level of trading activity.
---------------------------------------------------------------------------

    \1277\ SROs currently fund their regulatory data collection
through a number of mechanisms. The Commission notes that FINRA does
not charge its members for OATS directly. Rather, it is funded from
FINRA's regulatory budget, which is collected from its members
through various membership fees. The options exchanges charge an
Options Regulatory Fee (``ORF''), which is a pass-through exchange
fee collected by OCC clearing members on behalf of the U.S. option
exchanges. The stated purpose of the fee is to assist in offsetting
exchange costs relating to the supervision and regulation of the
options market (e.g., routine surveillance, investigations, and
policy, rule-making, interpretive and enforcement activities). The
fee was first adopted by CBOE in 2008. See Securities Exchange Act
Release No. 58817 (October 20, 2008), 73 FR 63744 (October 27,
2008). Subsequently, PHLX (Securities Exchange Act Release No. 61133
(December 9, 2009), 74 FR 66715 (December 16, 2009), ISE (Securities
Exchange Act Release No. 61154 (December 11, 2010, 74 FR 67278
(December 18, 2009)), BOX (See Securities Exchange Act Release No.
61388 (January 20, 2010), 75 FR 4431(January 27, 2010)), NYSEAmex
(Securities Exchange Act Release No. 64400 (May 4, 2011), 76 FR
27114 (May 10, 2011), NYSE Arca (Securities Exchange Act Release No.
64399 (May 4, 2011), 76 FR 27114 (May 10, 2011), NASDAQ (Securities
Exchange Act Release No. 66158 (January 13, 2012), 77 FR 3024
(January 20, 2012, C2 (Securities Exchange Act Release No. 67596
(August 6, 2012), 77 FR 47902 (August 10, 2012)), MIAX (Securities
Exchange Act Release No. 68711 (January 23, 2013), 78 FR 6155
(January 29, 2013)), ISE Gemini (Securities Exchange Act Release No.
70200 (August 14, 2013), 78 FR 51242 (August 20, 2013)), and BATS
(Securities Exchange Act Release No. 74214 (February 5, 2105), 80 FR
7665 (February 11, 2015)) also adopted an ORF. The OFR is currently
assessed to customer orders at a rate of $0.0417 per U.S. exchange
listed option contract. The ORF is assessed on all trades, both buys
and sells. Further, FINRA charges fees for reporting to TRACE.
Certain fees are based on the number of users and type of connection
a firm has to the system, and others are based on size of the
transaction. See FINRA Rule 7730.
---------------------------------------------------------------------------

    The Commission is further soliciting comment on the alternative of
requiring the CAT NMS Plan to treat ATSs only as broker-dealers for
funding purposes, instead of treating ATSs as Execution Venues. Under
this alternative, firms that operate ATSs would not be charged for both
their ATS's market share of share volume (like an exchange) and its
message traffic (as a broker-dealer).\1278\ Instead, the firm operating
the ATS would pay fees based on the ATS's message traffic as part of
its operations as a broker-dealer, rather than as an Execution Venue as
well, for fee purposes. As described in Section IV.F.4.d, the
Commission preliminarily believes that under the current funding model
in the CAT NMS Plan, the cost differentials that result might create
incentives for broker-dealers to route order flow to minimize costs,
creating a potential conflict of interest with broker-dealers' investor
customers, who are likely to consider many facets of execution quality
(such as price impact of a trade and probability of execution in a
venue in which the order is exposed) in addition to any of these costs
that are passed on to them.\1279\ The Commission is aware that this
alternative would, in effect, shift part of the Central Repository
funding costs from broker-dealers to Execution Venues because volume
transacted on ATSs would not be assessed a portion of the Execution
Venue funding burden and this portion would instead be allocated to
exchanges. Furthermore, the Commission is aware that it is possible
that under this alternative approach, ATSs might pay less in fees than
similarly situated exchanges, which could disadvantage exchanges
relative to ATSs.
---------------------------------------------------------------------------

    \1278\ As explained in Section IV.F.4.c, supra, the Commission
preliminarily believes that the bifurcated funding model proposed in
the Plan results in differential CAT costs between Execution Venues
because it would assess fees differently on exchanges and ATSs for
two reasons. First, message traffic to and from an ATS would
generate fee obligations on the broker-dealer that sponsors the ATS,
while exchanges incur no message traffic fees. Second, broker-
dealers that internalize off-exchange order flow, generating off-
exchange transactions outside of ATSs, would face a differential
funding model compared to ATSs and exchanges.
    \1279\ See CAT NMS Plan, supra note 3, at Article VIII.
---------------------------------------------------------------------------

    The Commission is also soliciting comment on the alternative
approach of not charging broker-dealers for message traffic to and from
their ATSs while still assessing fees to ATSs as Execution Venues or
exchange broker-dealers for their message traffic. Under this
alternative, broker-dealers that operate ATSs would pay trading volume
based fees on their ATSs volume in the same manner as exchanges' fees
are assessed. However, the message traffic to and from the ATS would
not be included in the message traffic used to calculate fees assessed
to the broker-dealer that sponsors the ATS. The Commission
preliminarily believes this alternative would help mitigate the broker-
dealer routing incentives discussed above. The Commission is aware that
because the volume executed on ATSs would be included in the portion of
Central Repository funding assigned to Execution Venues, this funding
approach would not shift part of the funding burden assigned to
Execution Venues away from ATSs (and the broker-dealers that operate
them) to exchanges as the previous alternative would.
    The Commission preliminarily believes that either of these ATS-
related funding alternative approaches would avoid disadvantaging ATSs
relative to similarly situated exchanges, and would be less likely to
result in the conflicts of interest in routing described above.
Currently, the Commission lacks sufficient details on the fee structure
to make this determination, because the fee structure has not yet been
finalized.
    The Commission is also soliciting comment on the alternative of
excluding ATS volume from TRF volume for purposes of allocating fees
across Execution Venues. Under this alternative, SROs that operate TRFs
(currently only FINRA) would not pay Execution Venue fees for volume
that originated from an ATS execution. This alternative would avoid the
problem of double-counting ATS volume as share volume, which originates
because each ATS trade is counted for fee-levying purposes as share
volume associated with an ATS, then counted again as share volume when
the trade is printed to a TRF. However, the Commission notes that other
over the counter volume, such as occurs when orders are executed off-
exchange against a broker-dealer's inventory, would be assessed share
volume fees while the message traffic that resulted in this execution
would also be subject to fees through the broker-dealers that had order
events related to these transactions. This contrasts to executions that
occur on exchanges, where the venue that facilitates the execution does
not pay fees for message traffic that led to the execution.
    The Commission is also soliciting comment on the alternative of not
treating the Trade Reporting Facilities (``TRFs'') as FINRA Execution
Venues. TRFs capture ATS share volume, which is already subject to fees
allocated to Execution Venues, and non-ATS off-exchange share volume,
which is subject to CAT fees allocated to broker-dealer message
traffic. Consequently, under the approach in the Plan, the activity
that generates a TRF trade report is already assessed CAT fees through
the broker-dealers that facilitate the trade, or the ATSs that served
as the Execution Venue. Under this alternative approach, FINRA would
not pay any fees directly into the Central Repository, and broker-
dealers would only incur fees directly levied on them by the Operating
Committee, rather than also

indirectly paying the TRF fees passed on to them by FINRA. If FINRA
does not pay fees directly to the Central Repository, this could alter
its incentives with respect to matters of cost voted on by the
Operating Committee. However, it is possible that, since FINRA
represents the viewpoints of its broker-dealer members, its incentives
would be similar under either approach.
    The CAT NMS Plan would allocate net profit or net loss from the
operation of the CAT equally among the Participants, regardless of
size, which could advantage small exchanges in the event of a profit
and disadvantage small exchanges in the event of a loss. This could
negatively impact competition if the cost differentials are significant
enough to alter the set of services that some competitors offer. As an
alternative, the Commission is soliciting comment on whether the profit
or loss from operating CAT should be allocated across Participants by
market share of share volume, consistent with how the CAT costs would
be allocated under the Plan.\1280\ The Commission preliminarily
believes that this alternative would limit the possibility of
extraordinary profits or losses from CAT resulting in a
disproportionate advantage or disadvantage to exchanges with low
trading volume.
---------------------------------------------------------------------------

    \1280\ Id.
---------------------------------------------------------------------------

    Finally, the Commission is soliciting comment on requiring a
strictly variable funding model, rather than the fixed-tiered model in
the CAT NMS Plan. Under a variable funding model, each trade or message
is subject to a fee, rather than a broker-dealer incurring a fixed fee
that depends on that broker-dealer's volume tier.\1281\ The Commission
preliminarily believes that this alternative might increase
administrative costs of the CAT NMS Plan as compared to an approach
that uses the fixed-tiered funding model. However, the Commission also
preliminarily believes that the fixed-tiered funding model can create
incentives for market participants to change their behavior to avoid
fees when their activity is near the boundary between two tier
levels.\1282\ The Commission preliminarily believes that a strictly
variable funding model could reduce inefficiencies resulting from
market participants changing their behavior to move into a lower fee
tier.
---------------------------------------------------------------------------

    \1281\ For example, under a fixed-tiered funding approach, any
broker-dealer with no more than 10,000 CAT Reportable Events in a
given month might pay $100 in fees, even a broker-dealer reporting a
single event. Under a strictly variable funding approach, every
broker-dealer CAT message might be assessed one cent in fees. For a
broker-dealer reporting 10,000 CAT Reportable Events in a given
month, the same fee burden would be incurred, but a broker-dealer
reporting a single CAT reportable event would pay only one cent.
    \1282\ See Section IV.F.3.b, supra.
---------------------------------------------------------------------------

f. Requiring Listing Exchange Symbology
    The Commission is soliciting comment on an alternative to the CAT
NMS Plan that would allow CAT Reporters to report using their existing
symbologies, rather than listing exchange symbology. The Plan requires
the Plan Processor maintain a complete symbology database, including
the historical symbology. The CAT NMS Plan also requires CAT Reporters
to report data using the listing exchange symbology format, which would
be used in the display of linked data. The CAT NMS Plan also requires
Participants to provide the Plan Processor with the issue symbol
information, and validation of symbology would be part of data
validation performed by the Plan Processor.\1283\
---------------------------------------------------------------------------

    \1283\ See CAT NMS Plan, supra note 3, at Appendix C, Section
A.1(a).
---------------------------------------------------------------------------

    The Commission preliminarily believes that, in light of the
proposed requirement for the Plan Processor to maintain a complete
symbology database, the requirement that CAT Reporters report using
listing exchange symbology may result in unnecessary costs to CAT
Reporters. Therefore, the Commission preliminarily believes that the
alternative of allowing CAT Reporters to use their existing symbologies
for reporting purposes could significantly reduce the costs for
exchanges and broker-dealers to report order events to the Central
Repository, as compared to the approach in the CAT NMS as filed,
without a significant impact on the expected benefits of the Plan or
the costs to operate the Central Repository.
    Currently, Execution Venues handle complex symbology in different
fashions. Some common stocks, for example, have multiple classes of
shares. Exactly specifying the issue to be traded involves identifying
the ticker symbol and sometimes a share class. On some venues, the
convention is that these security types are reported without a
delimiter in the symbol; other venues use a delimiter, and delimiters
can vary across venues. For example, assume a firm has a listing symbol
of ABC, and has two classes of shares, A and B. An issue might be ``ABC
A'' on one venue, ``ABC_A'' on another, and ``ABCA'' on a third. This
can cause numerous problems for analyses that extend beyond a single
trading venue, particularly if ``ABCA'' is the complete listing symbol
for an unrelated security. As mentioned in the Benefits Section, the
inclusion of the complete symbol history of a security and the
requirement for queries, reports, and searches to automatically collect
the appropriate data despite symbol changes promotes accurate query
responses by ensuring the inclusion of order events that might have
been excluded because of symbology differences and by excluding order
events in unrelated securities. The Commission preliminarily believes
that the CAT NMS Plan can achieve these benefits without requiring CAT
Reporters to report using listing exchange symbology.
    As discussed in the Costs Section, one potential cost driver to CAT
Reporters is the need to process reports before submitting them to the
Central Repository.\1284\ If reports can contain drop copies from an
order management system, CAT Reporters can aggregate their drop copies
and send them without further processing the reports. If, on the other
hand, CAT Reporters need to transform or add any fields to the report,
those CAT Reporters would need to develop, test, and maintain code to
run the transformation, and they would need to actually transform the
data at least once a day. If CAT Reporters do not need to run this
transformation at all, they could save money. The Commission
preliminarily believes that the requirement to report in listing
exchange symbology could be the only requirement that necessitates that
CAT Reporters transform data before reporting it to the Central
Repository.\1285\ Therefore, the Commission preliminarily believes that
eliminating this requirement could reduce costs relative to the CAT NMS
Plan as filed.
---------------------------------------------------------------------------

    \1284\ See Section IV.F.3.a, supra.
    \1285\ See id.
---------------------------------------------------------------------------

    Some broker-dealers may already have adequate computational
resources to run the transformation, whether at once, in batches, or in
real-time; others could have to invest in such resources--an investment
that would be saved by eliminating the requirement to use listing
exchange symbology. The degree of cost savings would depend on any
requirements to transform the data prior to reporting, which depends on
the allowable formats for transmission. The CAT NMS Plan does not
specify the allowable formats or whether the Central Repository would
require a fixed format. If the Technical Specifications require a fixed
format, broker-dealers would most likely have

to transform their data prior to reporting it to the Central Repository
regardless of the requirement to use listing exchange symbology, and
the listing exchange symbol requirement could add very little to the
reporting costs. Therefore, the Commission recognizes significant
uncertainty in the cost savings associated with this alternative.
    Further, the Commission cannot estimate the degree to which
eliminating this requirement could reduce costs as compared to those in
the CAT NMS Plan as filed, because it lacks the data to do so. The Plan
assumes the need to transform the data to match exchange symbologies
and therefore does not separately itemize the cost for transformation
as a separate step in the reporting process. The Commission has no data
from which it can independently estimate the cost differential because
it depends on information internal to each of a heterogeneous group of
CAT Reporters (e.g., the symbologies their current systems use and
whether those are readily transformed to match listing exchange
symbologies), which information is not compiled or stored anywhere and
to which the Commission therefore does not have ready access.
g. Data Accessibility Standards
    The Commission is soliciting comment on alternative approaches to
the manner in which the CAT NMS Plan provides data access to
regulators. Section IV.E.1.c of the CAT NMS Plan summarizes the Central
Repository's requirements to provide access to regulators. This access
would include both an online targeted query tool and a user-defined
direct query or bulk extract.\1286\ The CAT NMS Plan also specifies
minimum standards the Central Repository must meet, such as capacity to
support 3,000 minimum regulatory users and minimum acceptable response
times for queries of varying complexity and size.\1287\ The CAT NMS
Plan also requires that the Plan Processor provide an open API that
allows use of regulator-supplied common analytic tools. As discussed
above, the CAT NMS Plan could result in many improvements to regulatory
activities such as surveillance, examinations, and enforcement, but
these benefits may not be fully realized if access to data is
cumbersome or inefficient.\1288\ The Commission does not have
information on the incremental benefits and costs of each aspect of
regulator access as would be necessary to analyze specific alternatives
to the many data access standards in the CAT NMS Plan.
---------------------------------------------------------------------------

    \1286\ See CAT NMS Plan, supra note 3, at Appendix C, Section
A.2(c).
    \1287\ Id. at Appendix C, Section A.1(b).
    \1288\ See Section IV.E.2, supra.
---------------------------------------------------------------------------

    The Commission is generally soliciting comment on alternatives to
each minimum data accessibility standard required in the CAT NMS Plan.
With multiple standards that could each be adjusted in countless ways,
the set of possibilities is infinite, which precludes their enumeration
and discussion within this analysis. Instead, this Section discusses
several examples and requests comment on alternative standards that
might be adopted. Because query response time standards provide exact
limits, the Commission uses those to illustrate how changing the
standards could affect benefits and costs. The CAT NMS Plan requires
query responses for various types of queries of 5 minutes, 10 minutes,
3 hours, and 24 hours, where the simplest queries involving scanning
narrow sets of data would be required to return in 5 minutes and
complex queries scanning multiple days of data and returning large
datasets would be required to return within 24 hours.
    The Commission notes that particularly large and complex data
queries can take extensive computing resources. While the benefits of
direct access to CAT Data depend on reasonably fast query responses,
the Commission recognizes that faster query response times come at a
cost. The Commission does not have detailed information on significant
breakpoints in those costs to judge whether slightly longer response
times than those in the Plan could significantly reduce the costs of
developing, maintaining, and operating the Central Repository. For
example, the Commission does not know whether a 48-hour response time
on a query of 5 years of data is significantly less expensive than a 24
hour response time, but either maximum response time would provide a
significant improvement in timeliness over current data. Likewise, the
Commission does not know whether the response times could be faster
without a significant increase in costs. The Commission recognizes that
the detailed information on numerous other minimum standards regarding
access to regulators is similarly unclear. Therefore, the Commission
requests comment regarding all standards for regulatory access and
whether technology creates natural breakpoints in costs such that a
particular alternative could reduce the costs of the Plan without
significantly reducing benefits or could increase benefits without
significantly increasing costs.
h. Intake Capacity Levels
    The Commission is soliciting comment on alternatives to the intake
capacity level required in the CAT NMS Plan. The CAT NMS Plan requires
that the Central Repository have an intake capacity of twice historical
peak daily volume measured over the most recent six years and the
ability to handle peaks beyond this Baseline level for short
periods.\1289\ In setting this requirement, the Participants could have
selected any number of alternative intake capacity standards.
---------------------------------------------------------------------------

    \1289\ See CAT NMS Plan, supra note 3, at Appendix D, Section
1.1.
---------------------------------------------------------------------------

    The Commission performed an analysis using MIDAS data and
determined that, for equities, the daily message traffic volume would
exceed two times the maximum daily message volume from the previous six
years (2010 through 2015) with a probability of 0.033%, which amounts
to the intake exceeding capacity levels about once every 8\1/3\ years.
Message volume measures all equity messages, including orders, order
updates, executions and cancellations, from MIDAS exchange direct
feeds, consolidated SIP feeds, and a small portion of the FINRA ATS
feed.\1290\
---------------------------------------------------------------------------

    \1290\ The Commission collected daily message volume from MIDAS
for six years (January 1, 2010 through November 19, 2015) and found
that August 10, 2011 generated the highest message traffic with 8.6
billion messages. A Box-Cox transformation was applied to the data
to fit it into a normal distribution. Using a probability density
function to fit the transformed data into a normal distribution, the
Commission found the probability that the daily message volume would
exceed 17.2 billion (twice the maximum) messages is 0.033%. The
MIDAS data used are all equity messages between 4 a.m. and 7 p.m. on
trading days--including orders, order updates, executions, and
cancellations--from exchange direct feeds, consolidated SIP feeds,
and a small portion of the FINRA ATS feed. MIDAS does not receive
messages before 4 a.m. and after 7 p.m. from its feed sources. The
data is missing AMEX feeds from January 1, 2010 through October 4,
2010; however, on average AMEX messages represent only 0.26% of
daily message volume from all feeds.
---------------------------------------------------------------------------

    The Commission preliminarily believes that intake capacity level is
likely to be a primary cost driver for the Central Repository.\1291\ In
selecting a standard, there is a trade-off between additional cost for
constructing and operating the Central Repository and the risk that
increased volume could exceed the Central Repository's capacity. If the
capacity were exceeded, the Commission preliminarily believes that
regulators' access to CAT Data could be

significantly delayed. The Commission is cognizant that periods of
heavy market activity are more likely to be periods with market events
that would require regulatory investigation, so the risk that the
Central Repository might not be able to provide timely access to data
when it is most needed is concerning.
---------------------------------------------------------------------------

    \1291\ Transactional volume and the growth in transactional
volume is likely a primary driver of the costs of the Central
Repository. See Section IV.F.1.a, supra. The Commission believes
that higher transactional volumes require higher intake capacity
levels, higher storage capacity, and higher processing capacity.
---------------------------------------------------------------------------

    The Commission is soliciting comment on requiring a different
intake capacity level. Alternative intake capacity levels would result
in costs and benefits that depend on the specific alternative capacity
level and whether it is higher or lower than the proposed level. For an
alternative with a lower intake capacity level, such as 1.5 times the
historic peak capacity level, the cost of creating and operating the
Central Repository might be lower, but the risk that the Central
Repository would be unable to meet regulator's data needs would be
higher than under the CAT NMS Plan, particularly following events
similar to the Flash Crash and August 24th, which created both a high
volume of trading records and a high demand for timely regulatory
analysis.
    An alternative with a higher required intake capacity level, such
as 3 times the historic peak capacity level, would likely entail higher
costs than the CAT NMS Plan, but higher intake capacity levels would
reduce the risk of the Central Repository being unable to meet
regulators' data needs and thus increase the benefits of the Plan.
    The CAT NMS Plan does not provide sufficient information for the
Commission to quantify the cost difference between alternative intake
capacities and the intake capacity in the CAT NMS Plan and there are no
analogous projects of this scope with publicly-available data from
bidding or otherwise from which the Commission could extrapolate.
3. Alternatives to the Scope of Certain Specific Elements in the CAT
NMS Plan
    The Commission notes that Rule 613 sets forth the minimum elements
the Commission believes are necessary for an effective consolidated
audit trail.\1292\ The Commission also notes that it adopted these
elements after notice and comment, including analyzing comment letters
submitted in response to the Rule 613 Proposing Release.\1293\
Moreover, the Participants, pursuant to Rule 613, analyzed and proposed
for inclusion in the CAT NMS Plan certain elements after consultation
with their members, the Bidders and the DAG.\1294\
---------------------------------------------------------------------------

    \1292\ See Adopting Release, supra note 9.
    \1293\ See id.
    \1294\ See CAT NMS Plan, supra note 3.
---------------------------------------------------------------------------

    While the Commission and the SROs have previously analyzed Rule
613, including the elements to be included in the CAT NMS Plan, the
Commission now has the Plan, together with the cost and alternatives
analysis provided by the Participants. The Commission has reviewed the
Plan, including the cost estimates, and has performed its own economic
analysis of the Plan. With the benefit of having reviewed and analyzed
the Plan, the Commission believes that it is reasonable to solicit
comment on alternatives to the scope of certain elements of the CAT NMS
Plan because these alternatives could impact the cost and benefits of
CAT, and given the passage of time, there may be market developments
that could affect those costs and benefits that should be evaluated.
These alternatives include: (1) Not requiring certain data fields that
are currently required by the Plan; (2) requiring the Operating
Committee to consider including more primary market transactions than
it would otherwise be required to consider under the Plan; (3) removing
from the Plan the OTC Equity Securities recording and reporting
requirements; and (4) excluding certain Customer information periodic
update requirements.
a. Data Fields
    Rule 613 provides that the Plan must require the reporting of
certain data fields.\1295\ It also gives discretion to the Participants
to require the reporting of data fields beyond the minimum set of
fields mandated by Rule 613.\1296\ The Commission is soliciting comment
on whether there should be changes to the data fields that would be
subject to CAT reporting. Specifically, the Commission is soliciting
comment on whether any data fields that would be subject to CAT
reporting under the Plan should be excluded.
---------------------------------------------------------------------------

    \1295\ See 17 CFR 242.613(c)(7).
    \1296\ Id.
---------------------------------------------------------------------------

    The Commission is soliciting comment on whether any data fields
that would be subject to CAT reporting under the Plan should be
excluded. For example, Rule 613 required the Plan to include a unique
customer identifier. As discussed further in Section IV.H.1 above the
Commission granted the Participants an exemption from certain
requirements in Rule 613 so that the Plan could include an approach
whereby each broker-dealer would assign a unique Firm Designated ID to
each trading account, which would be linked to a set of identifying
information.\1297\ The Commission preliminarily believes that this
approach would reduce the costs of requiring the customer identifier as
compared to the Rule 613 approach.\1298\
---------------------------------------------------------------------------

    \1297\ Using the Firm Designated ID and the other information
identifying the Customer that would be reported to the Central
Repository, the Plan Processor would then assign a unique Customer-
ID to each Customer. Upon original receipt or origination of an
order, broker-dealers would only be required to report the Firm
Designated ID on each new order, rather than using the Customer-ID.
See Exemption Order, supra note 18, at 14-15. Because the Plan
Processor would still assign a Customer-ID to each Customer under
the Customer Information Approach, the SROs are not requesting an
exemption from Rule 613(j)(5).
    \1298\ See Section IV.H.1.b, supra.
---------------------------------------------------------------------------

    As an alternative, the Commission could eliminate the requirement
to report customer identifiers. In the Adopting Release, the Commission
recognized that the implementation of the unique customer identifier
requirement might be complex and costly, and that the reporting of a
unique customer identifier would require SROs and their members to
modify their systems to comply with the Rule's requirements.\1299\
While the Commission preliminarily believes that eliminating the
customer identifier would reduce certain costs to industry associated
with the implementation and operation of CAT as compared to the Plan as
filed, without providing any additional material information, the
Commission preliminarily believes that such a change would limit the
benefits of the Plan significantly. As the Commission noted in the
Adopting Release for Rule 613, unique customer identifiers are vital to
the effectiveness of the consolidated audit trail, and the inclusion of
unique customer identifiers would greatly facilitate the identification
of the orders and actions attributable to particular customers and thus
substantially enhance the efficiency and effectiveness of the
regulatory oversight provided by the SROs and the Commission. Further,
without the inclusion of unique customer identifiers, many of the
potential benefits of a consolidated audit trail would not be
achievable.\1300\
---------------------------------------------------------------------------

    \1299\ See Adopting Release, supra note 9, at 45756.
    \1300\ Id.
---------------------------------------------------------------------------

    The Commission could also consider the alternative of excluding the
allocation time field from reporting requirements in the Allocation
Reports. Although this field is not currently required for
recordkeeping, some broker-dealers do already retain allocation time
information at the subaccount level in their trade blotters, though the
Commission does not have precise information on the prevalence of this
practice. The Commission preliminarily believes that removing
allocation time would significantly

reduce the benefits of the Plan because regulators currently undergo
significant difficulties to obtain allocation times and the allocation
times would be useful for enforcement investigations.\1301\ At the same
time, given the uncertainty in the current practices and the lack of
information on the costs of this field in the Plan, the Commission is
not sure how significant the cost savings of excluding the allocation
time field would be. The Commission preliminarily believes that the
substantial benefits of having allocation time at the subaccount level
available and relatively accessible for regulatory activities warrants
the costs associated with requiring CAT Reporters to include this field
in CAT Data and that these costs would be significantly mitigated to
the extent that CAT Reporters already retain this information.
---------------------------------------------------------------------------

    \1301\ See Section IV.E.1.a, supra.
---------------------------------------------------------------------------

    The Plan requires both the CAT-Reporter-ID for the broker-dealer
routing an order and the CAT-Reporter-ID for the broker-dealer
receiving a routed order to be reported to the Central Repository, both
when the order is routed and again when the routed order is received.
The Commission could eliminate the requirement to report the CAT-
Reporter-IDs when the routed order is received. However, while the
Commission preliminarily believes this might reduce the CAT Reporting
burden on some broker-dealers as compared to the Plan as filed, without
providing any additional material information, the Commission noted in
the Adopting Release that it does not believe the information reported
when the order is received would be duplicative. Instead, the
Commission noted that information regarding when a broker-dealer
received a routed order could prove useful in an investigation of
allegations of best execution violations to see if, for example, there
were delays in executing an order that could have been executed
earlier.\1302\ In addition, the Commission notes that if a market
participant is required to report when it receives an order, regulators
could solely rely on information gathered directly from that market
participant when examining or investigating the market
participant.\1303\ The Commission also noted that it relies on such
data to improve its understanding of how markets operate and evolve,
including with respect to the development of new trading practices, the
analysis and reconstruction of atypical or novel market events, and the
implications of new market dynamics.\1304\
---------------------------------------------------------------------------

    \1302\ See Adopting Release, supra note 9, at 45763.
    \1303\ Id.
    \1304\ Id.
---------------------------------------------------------------------------

    The Commission preliminarily believes that, with respect to the
reporting of data fields required by Rule 613, the analysis in the
Adopting Release is still applicable and the elimination of these data
fields from the Plan would result in a failure to achieve many of the
significant potential benefits of the Plan. However, as noted above,
the costs or benefits of including particular fields in the Plan as
filed, may have changed due to technological advances and/or changes in
the nature of markets since Rule 613 was adopted. The Commission is
therefore soliciting comment on the benefits and drawbacks of
eliminating these and any other required data fields from the Plan.
b. Primary Market Transactions
    The CAT NMS Plan does not require the reporting of any primary
market information to the Central Repository. However, as required by
Rule 613(i), the CAT NMS Plan commits to incorporating a discussion of
how and when to implement the inclusion of some primary market
information into a document outlining how additional Eligible
Securities could be reported to the Central Repository (the
``Discussion Document''), which would be jointly provided to the
Commission within six months after effectiveness of the Plan.\1305\
Additionally, as required by Rule 613(a)(1)(vi), the Plan includes a
discussion of the feasibility, benefits and costs of including primary
market transactions in the CAT NMS Plan.\1306\
---------------------------------------------------------------------------

    \1305\ See CAT NMS Plan, supra note 3, at Appendix C, Section
C.9. Section 6.11 of the Plan satisfies a requirement in 17 CFR
242.613(i) to plan for expansion.
    \1306\ 17 CFR 242.613(a)(1)(vi); CAT NMS Plan, supra note 3, at
Appendix C, Section A.6.
---------------------------------------------------------------------------

    In its discussion of primary market transactions, the CAT NMS Plan
states that including some primary market allocation information in the
CAT NMS Plan would provide significant benefits without unreasonable
costs, while other allocation information would provide marginal
benefits at significantly higher cost.\1307\ Specifically, the
discussion in the CAT NMS Plan divides the primary market allocation
information into two categories: Top-account allocations and subaccount
allocations. Top-account allocations refer to allocations during the
book-building process to institutional clients and retail broker-
dealers. These allocations are conditional and can fluctuate until the
offering syndicate terminates. Top-account institutions and broker-
dealers make the subsequent subaccount allocations to the actual
accounts receiving the shares. The Plan concludes that, with respect to
primary market information, only the subaccount allocations would
provide significant benefits without unreasonable costs if they were to
be incorporated into the CAT.
---------------------------------------------------------------------------

    \1307\ See id. at Appendix C, Section A.6(b)-(c).
---------------------------------------------------------------------------

    Based on that discussion, the Plan states that ``the Participants
are supportive of considering the reporting of Primary Market
Transactions, but only at the subaccount level, and would incorporate
analysis of this requirement, including how and when to implement such
a requirement, into their document outlining how additional Eligible
Securities could be reported to the Central Repository, in accordance
with SEC Rule 613(i) and Section 6.11 of the Plan.'' \1308\ The Plan
therefore would limit the discussion of reporting primary market
transactions in the Discussion Document to the subaccount level. As an
alternative to the approach in the Plan, the Commission is soliciting
comment on whether to broaden the required scope of the discussion of
primary market allocation information in the Discussion Document to
include an analysis of incorporating both top-account and subaccount
information for primary market transactions into the CAT. The
Commission preliminarily believes that the potential benefits of
including top-account information in the CAT could be significant and
that the costs of including top-account information could be lower than
what is described in the CAT NMS Plan and appropriate in light of
significant potential benefits. For these reasons, the Commission
preliminarily believes that top-account information should not be
excluded from the Discussion Document.
---------------------------------------------------------------------------

    \1308\ See CAT NMS Plan, supra note 3, at Appendix C, Section
A.6(c).
---------------------------------------------------------------------------

    Some primary market information is currently available to
regulators. FINRA collects primary market allocation information on the
initial and final list of distribution participants in their
Distribution Manager. Based on discussions with Participants, the
Commission understands that issuers of IPOs are required to report
primary market allocations to broker-dealers within the Distribution
Manager, but reported information does not contain broker-dealer
customer information on those allocations. Primary market allocations
to market participants other than broker-dealers can be voluntarily
reported to the system. FINRA uses this system in the course of
investigations in response to complaints and in normal

examinations of broker-dealers. The Commission can request data from
the Distribution Manager. When the Commission or an SRO needs
additional primary market information, they request it from
underwriters and other broker-dealers in the offering process. These ad
hoc data requests can take weeks for underwriters to process and, if
requesting data from multiple underwriters or other broker-dealers,
each could submit the data in a different format or with different data
definitions, adding time to the process of combining the data across
underwriters.
    Primary market information currently assists regulators in
examining underwriting practices and surveilling for violations of
regulations regarding allocations in primary offerings. The information
also is useful for conducting market analysis and research on policy
issues such as allocation decisions, flipping, and secondary market
price support and the analysis and reconstruction of market events such
as the Facebook IPO or the Vonage IPO.\1309\
---------------------------------------------------------------------------

    \1309\ See Reena Aggarwal, Allocation of Initial Public Offering
and Flipping Activity, 68(1) Journal of Financial Economics 111-135
(2003); Reena Aggarwal, Manju Puri and N. Prabhala, Institutional
Allocation in Initial Public Offerings: Empirical Evidence 57 (3)
Journal of Finance 1421-1442 (2002); Raymond P. Fishe, How Stock
Flippers Affect IPO Pricing and Stabilization, Journal of Financial
and Quantitative Analysis 319-339 (2002); and Raymond P. Fishe,
Ekkehart Boehmer, Underwriter Short Covering in the IPO Aftermarket:
A Clinical Study, Journal of Corporate Finance, 575-594 (2004). For
background information on the Facebook IPO, see SEC Press Release,
SEC Charges NASDAQ for Failures During Facebook IPO (May 29, 2013),
available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171575032. For background information on the Vonage
IPO, see FINRA, FINRA Fines Citigroup Global Markets, UBS and
Deutsche Bank $425,000, Orders Customer Restitution for Supervisory
Failures in Vonage IPO (September 22, 2009), available at http://www.finra.org/newsroom/2009/finra-fines-citigroup-global-markets-ubs-and-deutsche-bank-425000-orders-customer.
---------------------------------------------------------------------------

    The Commission preliminarily believes that including both top-
account and subaccount allocation information for primary market
transactions in CAT would make primary market information that
identifies customers directly accessible to regulators, which would be
beneficial. In particular, top-account information in addition to
subaccount information would be necessary to surveil, without
requesting data from underwriters, for prohibited activities in the
book-building process and would improve the efficiency of
investigations into such prohibited activities. For example, including
top-account information in CAT Data would provide regulators efficient
access to data relevant for investigations into tie-in arrangements
because regulators would be able to correlate treatment in the primary
offering with other trading activity to see if, for example, those who
trade more in the aftermarket receive more of the initial public
offering shares they request than others. Including such information in
CAT Data would also provide efficient access to data that could
identify potential allocations that preference some customers over
others in the IPO allocation process because the SROs and Commission
could examine the relationship between IPO initial allocations, initial
indications of interest, and fluctuations in allocations and
indications of interest during the book-building process. In the
Adopting Release, the Commission noted several additional benefits of
collecting top-account information in addition to subaccount
information for primary market transactions. For example, examinations
of ``spinning,'' ``laddering,'' and other ``quid pro quo'' arrangements
would benefit from efficient access to such CAT Data, which would
facilitate a comparison of those customers allocated shares in an
offering to those who are not allocated shares in an offering and how
the conditional allocations change during the book-building process.
Book-building information, which is currently very difficult for
regulators to assemble, would provide very useful insights into IPO and
follow-on allocations in market analysis. Such insights would better
inform rulemaking and other policy decisions.
    The CAT NMS Plan estimates that for broker-dealers to implement a
system to record and report top-account and subaccount allocation
information for primary market transactions would take 36 months of
staff time per firm at a cost of $234.8 million whereas just subaccount
information would take 12 months of staff time per firm at a cost of
$58.7 million.\1310\ The inclusion of top-account allocation
information accounts for the difference of $176.1 million. The CAT NMS
Plan explains that including top-account information in the CAT would
result in higher implementation costs because the top-account
information is maintained in book-building systems in investment
banking divisions of broker-dealers that differ fundamentally from
secondary market systems.\1311\
---------------------------------------------------------------------------

    \1310\ See CAT NMS Plan, supra note 3, at Appendix C, Section
A.6(c). The estimated costs reflect the implementation cost of
systems development needed to support top-account and subaccount
information for primary market transactions to CAT. The $234.8
million figure assumes 36 months of staff time, with 21.741 days per
month at a $1200 daily FTE rate for 250 firms. The $58.7 million
figure assumes 9 months of staff time, with 21.741 days per month at
a $1200 daily FTE rate for 250 firms. The estimates do not include
any ongoing annual costs to maintain the reporting; the Commission
assumes that these systems would be supported by staff already
engaged to support CAT reporting.
    \1311\ Id. at Appendix C, Section A.6(a).
---------------------------------------------------------------------------

    However, the Commission preliminarily believes that the costs of
adding top-account allocation information may be lower than those
estimated in the CAT NMS Plan, for several reasons. First, in
combination with an alternative that would require less granular time
stamps or a larger allowable clock offset on less time-sensitive
systems, the costs for top-account information would be lower than
indicated in the Plan. The Commission recognizes that the benefits from
time stamp granularity and clock synchronization in the systems for
reporting top-account information may be lower than those for secondary
market systems because activity occurs far less frequently than it does
on exchanges and regulators may not need to sequence primary market
transactions relative to secondary market transactions within a second.
The Commission is unable to estimate cost savings from alternative
clock synchronization requirements because estimates presented in the
Plan do not cite these specific costs. Second, the Plan's estimate is
sensitive to the number of underwriters. In particular, the estimates
assume 250 underwriters would need to implement changes to provide for
top-account allocation information for primary market
transactions.\1312\ This is also the same number of underwriters
assumed to need to implement subaccount allocation information.
However, the Commission suspects that the number of underwriters that
would need to implement changes for top-account information may be
lower than the number that implement subaccount information for primary
market transactions because the lead underwriters could have all of the
information necessary to report the top-account information. If so,
then only those underwriters that expect to lead an offering would need
to implement systems changes to report top-account allocation
information. Estimating costs only for lead underwriters could result
in a much smaller estimate.
---------------------------------------------------------------------------

    \1312\ See Cost Estimate for Adding Primary Market Transactions
into CAT (February 17, 2015), available at http://www.catnmsplan.com/industryfeedback/p602480.pdf.
---------------------------------------------------------------------------

    The Commission does not have an estimate of the ongoing costs of
underwriters reporting top-account information. However, the Commission
preliminarily estimates an average of

approximately 120 IPOs each year and 340 follow-on offerings each year
from 2001 to 2014. Assuming each offering contains approximately 260
initial allocations, including all indications of interest, with 10
amendments from initial allocation to final allocation, each offering
would generate 2,600 CAT Reportable Events for a total of 1.2 million
per year.\1313\ This total is much smaller than the number of
Reportable Events in the secondary market (trillions). Therefore, while
the Commission cannot estimate the costs of ongoing primary market
reporting, the Commission believes the ongoing costs of reporting
primary market transactions would be a fraction of the ongoing costs of
secondary market reporting and would likely be supported by staff
already engaged to maintain CAT reporting.
---------------------------------------------------------------------------

    \1313\ The Commission estimated the number of allocations per
offering by averaging the data for the 11 IPOs made public along
with an academic paper. See Jay R. Ritter and Donghang Zhang,
Affiliated Mutual Funds and the Allocation of Initial Public
Offerings, 86(2) Journal of Financial Economics 337-368 (2007) and
http://bear.warrington.ufl.edu/ritter/Allocation08282012.xls. If the
Commission assumes that each offering would generate 10 amendments
to allocations prior to the subaccount allocations, there would be
2,600 reports per offering and 1.2 million reports per year using
the number of offerings in 2014. If each offering instead generates
5 or 20 amendments, the number of reports per year would be 0.6
million or 2.4 million.
---------------------------------------------------------------------------

    The Commission also recognizes that including top-account
information in the CAT NMS Plan could change the competitive landscape
of the market for underwriting services. In particular, some
underwriters may choose to exit the market instead of report top-
account information. The Commission preliminarily believes that the
compliance costs themselves would be low compared to underwriting
fees.\1314\ Nonetheless, the Commission recognizes that some
underwriters may exit rather than comply with the CAT NMS Plan
requirements. Likewise, the Commission recognizes that the costs to
implement CAT reporting of top-account allocation information could
increase barriers to entry.
---------------------------------------------------------------------------

    \1314\ The primary market issued about $450 billion in common
stock in 2014 and underwriters earned $5.2 billion in underwriting
fees in 2014. This is high relative to the $176 million cost
estimate above. The value of issuances comes from the Securities
Data Corporation and information regarding the aggregate
underwriting fees comes from FOCUS reports.
---------------------------------------------------------------------------

    Finally, the Commission recognizes that requiring top-account
information in the CAT NMS Plan could alter the way underwriters
conduct their book-building activities. The Commission is not sure if
these changes would be beneficial or harmful to issuers and investors.
For example, issuers and investors could benefit if including top-
account information in CAT deters book-building activity that violates
Regulation M or FINRA Rule 5110, 5130 or 5131, though some particular
investors may lose any gains from preferential treatment. However, the
Commission is uncertain whether investors and issuers would benefit if
underwriters altered their book-building activity in an effort to
reduce their reporting burden. For example, if reporting every change
to a conditional allocation proved cumbersome, underwriters may choose
to update preliminary allocations less often. This could change the way
that underwriters and investors interact with each other in the book-
building process with implications for the potential success of the
offering or investors' satisfaction with the outcome.
c. OTC Equity Securities
    The CAT NMS Plan requires the reporting of data regarding OTC
Equity Securities upon implementation of the CAT NMS Plan. The
Commission is soliciting comment on the alternative of eliminating the
requirement to report activity in OTC Equity Securities from the CAT
NMS Plan, and instead requiring only that the SROs include a discussion
of how OTC Equity Securities could be incorporated into the CAT in the
Discussion Document that they are required to provide within six months
after the effective date of the Plan pursuant to Rule 613(i).\1315\
This was the approach taken with respect to OTC Equity Securities in
Rule 613, because the Commission believed that limiting the scope of
the CAT to NMS securities was a reasonable first step in implementing
the CAT.\1316\ Under this approach, the CAT NMS Plan would require each
national securities exchange and national securities association,
within six months after effectiveness of the national market system
plan, to jointly provide to the Commission a document outlining in
detail how OTC Equity Securities (along with certain other categories
of securities) could be incorporated into the CAT information,
including an implementation timeline and a cost estimate. The
Commission preliminarily believes that excluding OTC Equity Securities
from the CAT upon implementation would reduce costs of the CAT NMS
Plan. But, the Commission also preliminarily believes that removing the
requirement to report activity in OTC Equity Securities from the CAT
NMS Plan would limit the regulatory benefits of the CAT NMS Plan
significantly.
---------------------------------------------------------------------------

    \1315\ 17 CFR 242.613(i).
    \1316\ Id.; see also Adopting Release, supra note 9 at 45744.
The Plan states that ``[e]ven though SEC Rule 613 does not require
reporting of OTC Equity Securities, the Participants have agreed to
expand the reporting requirements to include OTC Equity Securities
to facilitate the elimination of OATS.'' See CAT NMS Plan, supra
note 3, at Appendix C, Section C.9.
---------------------------------------------------------------------------

    Under the alternative approach, OTC Equity Securities would be
excluded from the Plan upon implementation. While they could still be
incorporated into the Plan following the submission of the Discussion
Document, the alternative approach would create uncertainty as to
whether or not OTC Equity Securities would ultimately be incorporated
into CAT NMS Plan and the timeline for that process.
    Excluding OTC Equity Securities from the CAT NMS Plan could limit
oversight of the OTC equity market relative to the oversight obtainable
under the Plan.\1317\ FINRA currently collects reports on OTC equity
markets in its OATS data.\1318\ The primary difference between OATS and
CAT Data for OTC Equity Securities would be in completeness, due to the
additional data fields in CAT Data that are not in OATS, particularly
Customer-ID; in any accuracy improvements relative to OATS; in direct
access for the Commission; and in the timeliness relative to OATS,
particularly in having linked data that requires less time to process.
Relative to the Plan, therefore, excluding OTC Equity Securities could
reduce the efficiency and effectiveness of regulators overseeing the
OTC market, conducting investigations of manipulation, pump and dumps,
and improper penny stock sales. It could also reduce the efficiency of
estimating disgorgement payments to harmed investors relative to the
Plan.
---------------------------------------------------------------------------

    \1317\ The Commission has discussed the potential for fraudulent
activity in the OTC market. See SEC, Microcap Fraud, available at
http://www.sec.gov/spotlight/microcap-fraud.shtml.
    \1318\ See supra note 351 and related text.
---------------------------------------------------------------------------

    The CAT NMS Plan states that including OTC Equity Securities could
facilitate the retirement of OATS.\1319\ If OTC Equity Securities are
not included in the CAT NMS Plan upon implementation, including OTC
Equity Securities at a later time would require an amendment to the CAT
NMS Plan, which could take significant time and potentially delay the
retirement of OATS.\1320\ The Commission is cognizant

that the period of duplicative reporting, during which both CAT and
OATS would be reported by market participants, is likely to impose a
significant cost on industry.\1321\ The CAT NMS Plan states that the
inclusion of OTC Equity Securities at CAT implementation is generally
supported by industry to facilitate the retirement of OATS.\1322\
---------------------------------------------------------------------------

    \1319\ See CAT NMS Plan, supra note 3, at Appendix C, Section
A.1(a) n.16.
    \1320\ The Commission notes, however, that the incorporation of
OTC Equity Securities is not the only hurdle needed to retire OATS,
and other hurdles may remain open even after any approval of the CAT
NMS Plan. For example, the Plan anticipates a period of 12-18 months
during which the SROs would analyze rules and systems to determine
which require duplicative information. The process and timeline for
elimination of duplicative reporting systems is discussed in Section
IV.F.2, supra.
    \1321\ See Section IV.F.2, supra.
    \1322\ See CAT NMS Plan, supra note 3, at Appendix C, Section
C.9.
---------------------------------------------------------------------------

    The Commission preliminarily believes that excluding OTC Equity
Securities from the CAT upon implementation would reduce certain costs
associated with implementation and operation of CAT as compared to the
Plan as filed, without providing any additional material information,
because less data would be reported,\1323\ therefore requiring fewer
resources to implement and maintain the CAT. The Commission further
preliminarily believes that CAT Reporters and the Central Repository
would avoid certain compliance costs if OTC equities were excluded. To
the extent that market participants rely on separate IT infrastructure
to handle activity in OTC as opposed to listed securities, delaying the
inclusion of OTC Equity Securities in CAT postpones costs associated
with updating these systems. Postponing these system modifications may
allow these modifications to be more efficiently integrated into other
planned system upgrades, reducing costs to industry. The Commission
notes that, even under this alternative approach, market participants
still may incur these costs eventually, because the approach
contemplates that the CAT NMS Plan could be expanded to require the
reporting of order events in OTC Equities following the submission of
the Discussion Document.
---------------------------------------------------------------------------

    \1323\ For example, in February, 2016, the average daily number
of trades in OTC securities is approximately 98,300, on an average
of approximately 18,500 issues over that same period. While that
volume of trades is not large, the number of distinct issues is.
---------------------------------------------------------------------------

    Furthermore, the Commission preliminarily believes that the cost
savings from delaying incorporating OTC Equity Securities in the CAT
NMS Plan are likely to be lower than the increase in costs of
duplicative reporting that result from a delay to OATS retirement. Any
broker-dealers that trade both OTC Equity Securities and listed equity
or option securities would have to comply with the Plan regardless of
the inclusion of OTC equities, so the cost savings to these broker-
dealers from the exclusion of OTC Equity Securities may not be
significant. The Commission preliminarily believes that the number of
broker-dealers that trade only OTC Equity Securities is small. Finally,
the Commission expects that the duplicative reporting costs would be
fairly significant and that extending the time until the retirement of
OATS would be a significant additional cost.
    The Commission cannot estimate the amount of the cost reduction
from excluding OTC Equity Securities because it lacks the data to do
so. The CAT NMS Plan presents data only on the aggregate costs of on-
exchange and OTC equity reporting; it does not present data on the
costs specifically attributable to OTC equity reporting. The Commission
has no data from which it can independently estimate the cost
differential because it depends on information internal to each CAT
Reporter (e.g., how their systems would change for the alternative
compared to the Plan), which is not compiled or stored anywhere, and to
which the Commission therefore does not have ready access, and it
depends on when OTC Equity Securities would otherwise be included and
the status of OATS and other systems in the interim.
d. Periodic Updates to Customer Information
    As noted above in Section IV.E.1.b(4), the Plan Processor is
required to create a Customer-ID and map Firm Designated IDs to this
Customer-ID so that records stored in the CAT Data link to the
Customers. To facilitate this, the Plan requires CAT Reporters to
submit an initial set of Customer information to the Central Repository
and subsequent daily updates and changes to that Customer
information.\1324\ In addition to daily updates to reflect changes in
Customer information required in Rule 613, the CAT NMS Plan also
requires members to submit periodic full refreshes of all Customer
information to the CAT.\1325\ The Commission is soliciting comment on
an alternative that would eliminate the requirement for periodic full
refreshes.
---------------------------------------------------------------------------

    \1324\ See CAT NMS Plan, supra note 3, at Appendix C, Section
A.1(a)(iii); Appendix D, Section 9.1.
    \1325\ See id., at Appendix C, Section A.1(a)(iii) n.33.
---------------------------------------------------------------------------

    The CAT NMS Plan states that the purpose of these refreshes is to
``ensure the completeness and accuracy of Customer information and
associations.'' \1326\ Although the Commission believes that the
Participants should ensure that customer information in the Central
Repository is complete and accurate, the requirement for periodic full
refreshes seems redundant if the initial list and daily updates are
complete and accurate and would, therefore, provide no additional
benefit. Further, not requiring these periodic refreshes could reduce
the risk of a security breach of personally identifiable information.
However, the Commission recognizes that periodic full refreshes of
customer information could address any errors that are introduced in
the daily update process, although the Commission preliminarily
believes that such problems are likely to be quite rare. In addition,
the Commission recognizes that not requiring the periodic full
refreshes could reduce certain costs associated with implementation and
operation of CAT as compared to the Plan as filed for CAT Reporters,
although the Commission preliminarily believes that these cost
reductions would be minor for two reasons. First, the quantity of data
required to refresh the customer information table is very small
compared to the size of market data files submitted regularly by most
market participants. Second, because market participants would need to
develop software and procedures to initially populate the customer
information table, that software and procedure should be available to
refresh the table periodically. Therefore, the Commission preliminarily
believes that removing the requirements for periodic full refreshes of
customer information could minimally reduce the cost of the Plan
without materially reducing the benefits.
---------------------------------------------------------------------------

    \1326\ Id.
---------------------------------------------------------------------------

4. Alternatives to the CAT NMS Plan
    The Commission is soliciting comment on the broad set of
alternatives of modifying existing systems to reduce the data
limitations described above instead of approving the CAT NMS Plan.
    When it adopted Rule 613, the Commission noted that ``the costs and
benefits of creating a consolidated audit trail, and the consideration
of specific costs as related to specific benefits, are more
appropriately analyzed once the SROs narrow the expanded array of
choices they have under the adopted Rule and develop a detailed NMS
plan.'' \1327\ The Commission also noted that a ``robust economic
analysis of . . . the actual creation and implementation of a
consolidated audit trail itself . . .

requires information on the plan's detailed features (and their
associated cost estimates) that will not be known until the SROs submit
their NMS plan to the Commission for its consideration.'' \1328\
Accordingly, the Commission deferred its economic analysis of the
actual creation, implementation, and maintenance of the CAT until after
submission of an NMS plan.
---------------------------------------------------------------------------

    \1327\ See Adopting Release, supra note 9, at 45725-26.
    \1328\ Id. at 45726.
---------------------------------------------------------------------------

    The Commission recognizes that approving the CAT NMS Plan is not
the only available means of improving the completeness, accuracy,
accessibility, and timeliness of the data used in regulatory
activities. Alternatively, the Commission could mandate improvements to
one or more existing data sources to address the data limitations noted
in the Baseline Section. The Commission previously considered this set
of alternatives when considering whether to adopt Rule 613.\1329\ The
Commission has now reviewed the CAT NMS Plan, including the cost
estimates, and has performed its own economic analysis of the Plan.
With the benefit of having reviewed and analyzed the Plan, the
Commission is now soliciting comment on this set of alternatives.
---------------------------------------------------------------------------

    \1329\ Id. at 45739-41.
---------------------------------------------------------------------------

    As an alternative to the CAT NMS Plan, the Commission could require
modifications to OATS. In the Adopting Release, the Commission noted
that it had received comments suggesting various ways that the OATS
system could be modified to serve as the central repository for the
consolidated audit trail.\1330\ However, the Commission also noted that
OATS would require significant modifications in order to provide the
attributes that the Commission deems crucial to an effective audit
trail. In particular, OATS excludes some exchange-based and other types
of non-member activity; it does not collect market-making quotes
submitted by registered market makers (in those stocks for which they
are registered); it is not a central repository and therefore does not
presently provide other regulators with ready access to a central
database containing processed, reconciled, and linked orders, routes,
and executions ready for query, analysis, or download; it does not
presently collect options data; it does not afford regulators an
opportunity to perform cross-product surveillance and monitoring; and
it does not collect information on the identities of the customers of
broker-dealers from whom an order is received.\1331\
---------------------------------------------------------------------------

    \1330\ Id.
    \1331\ Id. at 45741.
---------------------------------------------------------------------------

    The Commission preliminarily believes that, as stated in the
Adopting Release, the missing attributes identified above are crucial
to improving the completeness, accuracy, accessibility, and timeliness
of the data used in regulatory activities. Thus, any alternative to CAT
based on OATS that does not address those deficiencies would limit the
potential benefits of the alternative significantly. Given the
modifications necessary, the Commission cannot estimate the potential
cost savings, if any, from mandating an OATS-based approach as an
alternative to the CAT NMS Plan, because the Commission does not have
sufficient information to estimate the cost of modifying OATS to
address some or all of these deficiencies, either separately or in
combination. The Plan does not provide data on the cost of making each
relevant modification to OATS, and the Commission has no other data
from which it can independently estimate this, because the Commission
is not aware of any such data currently available to it. The Commission
notes, however, that Rule 613 provided flexibility to the SROs to
propose an approach based on OATS and/or other existing data
sources.\1332\ Given that Rule 613 provided this flexibility to the
SROs, the Commission preliminarily believes that the SROs could have
utilized an OATS-based approach if that approach would have represented
significant cost savings relative to the Plan's approach, and the SROs
that operate those reporting systems had presented such a solution as a
Bid. Furthermore, the Commission notes that an approach that modifies
and expands OATS to satisfy the requirements of the CAT NMS Plan
remains feasible under the current bidding process. The Commission
seeks comment on the costs and benefits of requiring modifications to
OATS as an alternative to the CAT NMS Plan.
---------------------------------------------------------------------------

    \1332\ Id. The Commission also notes that the current Plan could
allow the Plan Processor to leverage some elements of the existing
OATS infrastructure and/or other existing data sources in the
implementation of the CAT.
---------------------------------------------------------------------------

    Another alternative would be for the Commission to modify other
data sources instead of, or in combination with, OATS. However, like
OATS, all of the current data sources have limitations that would need
to be addressed in order to provide the attributes that the Commission
deems crucial to an effective audit trail.\1333\ Furthermore, the
Commission preliminarily believes that modifying any other single data
source would be more costly than modifying OATS, which is currently the
most comprehensive audit trail. While the Commission could require the
modification of multiple data sources in combination, the Commission
preliminarily believes that an alternative to the CAT NMS Plan that
relied on multiple data sources, such as a combination of OATS, COATS,
other SRO audit trail data and/or publicly available data, would
eliminate the benefits associated with having a single, complete
consolidated source from which regulators can access trade and order
data, which the Commission considers to be very significant.\1334\
---------------------------------------------------------------------------

    \1333\ The limitations of the various data sources are discussed
in Section IV.D, supra.
    \1334\ These benefits are discussed in Section IV.E, supra.
---------------------------------------------------------------------------

    In summary, the Commission cannot estimate the potential cost
savings, if any, from modifying one or more other data sources instead
of, or in combination with, OATS, because the Commission does not have
sufficient information to estimate the cost of modifying each of the
currently available data sources to address their current limitations,
separately or in combination. The Plan does not provide data on the
cost of making each relevant modification to each current data source,
and the Commission has no other data from which it can independently
estimate this, because the Commission is not aware of any such data
currently available to it.
    However, the Commission preliminarily believes that mandating
improvements to the completeness, accuracy, accessibility, and
timeliness of current data sources without an NMS Plan that requires
the consolidation of data and increased coverage across markets and
broker-dealers would likely significantly limit the potential benefits,
possibly without providing significant cost savings. The Commission
seeks comment on the costs and benefits of modifying one or more
currently available data sources, separately or in combination, as an
alternative to the CAT NMS Plan.
5. Request for Comment on the Alternatives
a. Generally
    383. Are there any other alternatives that the Plan should require?
If so, please describe the alternative and the costs and benefits of
the alternative relative to the Plan.

b. Alternatives to the Approaches Permitted by the Exemption Order
\1335\
---------------------------------------------------------------------------

    \1335\ See also Sections III.B.5-III.B.9, supra, for additional
requests for comment on the alternative Rule 613 approaches to the
approaches the Exemption Order allowed to be included in the CAT NMS
Plan.
---------------------------------------------------------------------------

    384. Should the CAT NMS Plan require Options Market Makers to
report their quotes to the Central Repository? Please explain. Do
Commenters believe that the costs of the Rule 613 approach would be
disproportionately borne by smaller broker-dealers? Why or why not?
Please provide data supporting your position.
    385. Should the Plan treat equity market makers the same as Options
Market Makers for purposes of quotation reporting--i.e., equity market
makers report only Quote Sent Time and exchanges to which the quote is
routed report the other information? Why or why not? What are the
relative costs and benefits of this alternative? Please provide cost
estimates.
    386. Should the Plan require an alternative approach to reporting
market maker quotes on exchanges where both equity and Options Market
Makers would not need to report their quotation updates, and instead
the exchanges would report Quote Sent Times in their reports of
receiving these quotation updates? Why or why not? How would such an
alternative affect the costs of building and operating the Central
Repository? How would such an alternative affect market-maker costs of
implementing and continuing CAT reporting?
    387. Should the CAT NMS Plan require that Allocation Reports
provide sufficient information for the Central Repository to be able to
link those allocations to order lifecycles? What are the costs and
benefits of providing this information? Please explain and provide cost
estimates.
    388. How do broker-dealers currently track which customers should
receive allocations from which set of orders and how do broker-dealers
ensure that those orders receive the correct average price? Can these
same systems provide a key that could accurately link the allocations
to lifecycles in many-to-many allocations? Please explain.
    389. Should the CAT NMS Plan require an alternative to the Customer
Information Approach? If so, what alternative should the Commission
require and what are the relative costs and benefits of the
alternative? Please explain.
    390. Should the CAT NMS Plan require an alternative approach to
assigning CAT-Reporter-IDs? If so, what alternative should the
Commission require and what are the relative costs and benefits of the
alternative? Please explain.
    391. Should the CAT NMS Plan provide for the use of the LEI or
another unique identification code as an alternative to the CAT-
Reporter-ID? What are the advantages and disadvantages of this
approach?
    392. Should the CAT NMS Plan require an alternative to the
requirement to time stamp manual orders to the second? If so, what
alternative should the Commission require? For example, should the Plan
require millisecond time stamps or one-minute time stamps? Please
explain and provide information on the relative costs and benefits of
the alternatives.
c. Alternatives to Certain Specific Approaches in the CAT NMS Plan
\1336\
---------------------------------------------------------------------------

    \1336\ See also Sections III.B.2, III.B.4, III.B.10, III.B.11,
supra, for additional requests for comment related to alternatives
to certain specific approaches in the CAT NMS Plan.
---------------------------------------------------------------------------

    393. Should the ``industry standard'' for the purposes of the clock
synchronization and time stamping be ``one-size-fits-all''? Please
explain. If not, how should the CAT NMS Plan structure variations in
clock synchronization and time stamp requirements that are based on
industry practices?
    394. Should the ``industry standard'' for the purposes of the clock
synchronization and time stamping requirements be defined based on
industry practice? Please explain. If not, how should ``industry
standard'' be defined? Should the ``industry standard'' consider
information other than current industry practice, such as the most
accurate technology currently available in the industry, or the
standard recommended by a particular industry group or authority? Could
a definition of ``industry standard'' set a maximum clock offset
threshold with an expectation that each CAT Reporter would be
responsible for smaller clock offsets if the CAT Reporter is
technically capable of such clock offsets? Please explain and include
information on the relative costs and benefits of such alternative
definitions.
    395. What benefits, if any, would derive from applying the same
uniform clock synchronization standards to all market participants
versus applying different standards to different participant types?
Which approach is preferable? If applying different standards to
different participant types, which participant types should have
smaller clock offset tolerances and which should have larger clock
offset tolerances and what are the industry standards for those
participant types? Please explain and provide any supporting data.
    396. Do Commenters agree with the Commission's cost estimates for
clock synchronization alternatives? Are there CAT Reporters other than
broker-dealers that would incur significant costs from increasing clock
synchronization standards to allowable clock drifts of less than 50
milliseconds, such as 1 millisecond or 100 microseconds? At what level
of clock synchronization would these costs become material? Please
explain. Do Commenters have estimates of these costs?
    397. Does the FIF Clock Offset Survey reflect the operational
capabilities of all potential CAT Reporters? Please explain.
    398. Do Commenters agree that an alternative that would relax the
logging requirements such that CAT Reporters would only need to log
exceptions and resulting synchronization events (and not every
synchronization event) would reduce costs of the CAT NMS Plan without
materially reducing its benefits? Why or why not? Do Commenters have an
estimate of how much such an alternative would reduce costs, either in
isolation or in combination with the alternative to not require
synchronization outside of event recording times? Please provide
supporting documentation for these estimates.
    399. Is there a need for clock synchronization standards outside of
regular and extended trading hours? Is clock synchronization beneficial
for retail orders that come in overnight? Are there examples of times
or events outside of regular and extended trading hours when clock
synchronization is more beneficial? Do Commenters agree that an
alternative that would not require synchronizing clocks outside of
times when servers record Reportable Events would reduce costs of the
Plan without materially reducing its benefits? Do Commenters have an
estimate of how much such an alternative would reduce costs? Please
explain and provide supporting documentation if possible.
    400. Are some CAT Reportable Events more time-sensitive than other
events? If so, what events are more time-sensitive and why? What
systems are more likely to process these events, and where are those
systems located (i.e., within broker-dealers, service bureaus,
Execution Venues)? Please explain.
    401. What market participant systems, if any, should have smaller
clock offset tolerances? Why? What clock

synchronization standard should these systems have? Why? What market
participant systems, if any, should have smaller clock offset
tolerances? Why? What clock offset tolerances should these systems
have? Why?
    402. Should the Plan require time stamps to be reported more
granularly than the one millisecond required in the Plan? If so, what
standard should be required? Do Commenters agree with the Commission's
analysis of the costs and benefits of requiring finer time stamp
resolution than 1 millisecond? Please explain.
    403. Should the CAT NMS Plan require different Error Rates in CAT?
For example, should the Plan require a lower initial Error Rate? If so,
what initial Error Rate should the Plan require and why? What would be
the costs and benefits of requiring a lower initial Error Rate? Should
the Plan require a lower Error Rate at some time period after
implementation? If so, what Error Rate should the Plan require and why
and when? What would be the costs and benefits of requiring a lower
Error Rate?
    404. Should the CAT NMS Plan require a day T+5 error correction
deadline instead of a day T+3 error correction deadline? What are the
relative costs and benefits of different error correction deadlines?
Please explain and provide cost estimates.
    405. Should the CAT NMS Plan require an alternative to the funding
model in which broker-dealers and Execution Venues pay fees on the same
fee schedule? If so, how would that funding model be structured and
what metric would determine the fee level? How would that funding model
affect the costs and benefits of the Plan, including the effect on
competition? Please explain.
    406. The Plan cites ``transactional volume'' as a cost driver for
the Central Repository, but uses ``message traffic'' to allocate
Central Repository costs across Industry Members. Do Commenters agree
with the Commission's assumption that these two metrics are highly
correlated? Is one of these metrics preferable for allocating costs
across Industry Members? Please explain.
    407. Should the CAT NMS Plan require alternative metrics to the
message traffic and market share metrics required by the Plan for
determining the tiers of the funding model but still place Execution
Venues on a different fee schedule than broker-dealers? If so, which
metrics? How would these alternative metrics affect the costs and
benefits of the Plan, including effects on competition? Could these
alternative metrics create conflicts of interest? Please explain.
    408. Do Commenters agree with the Commission's analysis of unified
versus bifurcated funding models? Why or why not?
    409. Should the Plan require a unified funding model wherein
Central Repository costs are allocated across all market participants
by message traffic? Why or why not?
    410. Should the Plan require a unified funding model wherein the
tiers of the funding model for all CAT Reporters would be based on
market share of share volume? Why or why not?
    411. Should the Plan require a unified funding model wherein a
fixed fee is levied on every trade? Why or why not? Could such a
funding model reduce implementation costs by utilizing infrastructure
already in place to assess Section 31 fees?
    412. Should the Plan require a bifurcated funding model wherein
Central Repository costs are allocated across broker-dealers by market
share of share volume? Why or why not?
    413. Should the Plan require a bifurcated funding model wherein
Central Repository costs treat ATSs as part of broker-dealers only,
instead of including them as Execution Venues? Why or why not?
    414. Should the Plan require a bifurcated funding model wherein
broker-dealer message traffic to and from an ATS are not included in
message traffic measures used to assess fees on broker-dealers? Why or
why not?
    415. Should the Plan require a bifurcated funding model wherein ATS
volume is excluded from TRF volume for the purposes of assessing
Execution Venue fees to operators of TRFs? Why or why not?
    416. Should the Plan require a bifurcated funding model wherein
TRFs are not counted as Execution Venues for purposes of assessing fees
on Execution Venues? Why or why not?
    417. Should the Plan require that profits or losses from operating
the Central Repository be allocated across Participants by market share
of share volume? Why or why not?
    418. Should the Plan require a strictly variable, rather than
tiered, funding model? Why or why not?
    419. Should the CAT NMS Plan require any funding model alternatives
that could result in ATSs and exchanges paying equivalent fees? If so,
how should that funding model be structured and what metrics should
determine the funding tiers? How would that funding model affect the
costs and benefits of this alternative, including effects on
competition? Could these alternatives create conflicts of interest and,
if so, to what extent? Please explain.
    420. How should the CAT NMS Plan distribute the profits and losses
of the Company among Participants? What are the relative costs and
benefits of alternative ways to divide the profits and losses among the
Participants? Please explain.
    421. Should the CAT NMS Plan require a strictly variable funding
model in which the fees paid are a set percentage of message traffic or
share volume instead of a tiered funding model in which fees are fixed
for a tier that is determined by message traffic or market share of
share volume? If so, how would that funding model be structured? What
are the relative costs and benefits of that funding model, including
the effect on competition? Please explain.
    422. Should the CAT NMS Plan exclude the requirement to report
listing exchange symbology and instead allow CAT Reporters to use
existing symbologies? Please explain. Would excluding this requirement
allow broker-dealers to report data to CAT without processing the data
ahead of the report? Please explain. What would be the relative costs
and benefits of removing this requirement from the Plan? Please provide
any cost estimates.
    423. Should the CAT NMS Plan require alternative minimum standards
for access to the CAT Data to those proposed in the CAT NMS Plan? If
so, what alternative minimum standards should the Commission require?
For example, should the response time on the largest queries be longer
or shorter than 24 hours? How would changes to the alternative minimum
standards affect the costs and benefits of the Plan? Please be specific
and provide cost estimates.
    424. Should the CAT NMS Plan require an intake capacity level
different from twice historical peak daily volume measured over the
most recent six years? If so, what intake capacity level should the
Plan require? What are the relative costs and benefits of this
alternative intake capacity level?
    425. The Plan proposes using a ``daisy chain'' approach for linking
order events within the Central Repository.\1337\ This approach was
chosen in favor of an approach that would require a unique order ID to
be assigned by the first market participant that receives an order, and
that order ID to be passed to and used by any market participant that
handles the order afterward (the ``unique order ID''

approach). Do Commenters believe that a unique order ID approach or any
other alternative approach would produce more accurate linkages than a
daisy chain approach or any other benefits? Please explain. According
to the Plan, the daisy chain approach would minimize impact on existing
OATS reporters because OATS already uses this type of linkage.\1338\ Do
Commenters believe that a unique order ID approach or any other
alternative approach would increase the costs for CAT Reporters who
currently report to OATS or have any other effect on the costs of the
Plan? Please explain and provide estimates. Given that the Bids from
potential Plan Processors all utilize the ``daisy chain'' approach,
would adopting a unique order ID approach at this stage cause a
significant disruption in the progress toward the implementation of a
consolidated audit trail? Please explain. What would the costs of such
a disruption be?
---------------------------------------------------------------------------

    \1337\ See CAT NMS Plan, supra note 3, at Appendix C, Section
A.1(b).
    \1338\ Id.
---------------------------------------------------------------------------

    426. The CAT NMS Plan requires that the Plan Processor make use of
a commercially available file management tool. What are the benefits to
CAT Reporters from this requirement? Does this requirement have any
effects on the competition between bidders? For example, are any
bidders, such as those that could more efficiently use a proprietary
file management tool, disadvantaged by this requirement? Please
explain. Does this requirement affect the ability of the Operating
Committee to replace an under-performing Plan Processor? Are there
other costs or benefits of this requirement? Please explain.
d. Alternatives to the Scope of Certain Specific Approaches in the CAT
NMS Plan
    427. Should the CAT NMS Plan require excluding any data fields
currently required to be included in the CAT Data (e.g., unique
customer identification, allocation time, and CAT-Reporter-IDs at both
order routing and receipt)? If so, which ones? Please explain and
provide information on the relative costs and benefits of excluding
those data fields, including any cost estimates.
    428. Should the CAT NMS Plan exclude primary market information?
Why or why not?
    429. Do Commenters agree with the analysis in the Plan of the
feasibility, benefits, and costs of the inclusion of primary market
information (including primary market transactions) in the CAT NMS
Plan? Please explain.
    430. Do Commenters have additional analysis relevant to the
decision to include primary market information (including primary
market transactions) in the CAT NMS Plan? If so, please describe that
analysis, including any data.
    431. Do Commenters agree with the Plan's decision to include
subaccount allocation information for primary market transactions in
the Discussion Document, which commits the Operating Committee to
consider the implementation of this subaccount allocation information
in the CAT NMS Plan? Please explain.
    432. Do Commenters agree with the Commission's assessment of the
costs and benefits of requiring top-account allocation information for
primary market transactions? Please explain. Should the Operating
Committee consider requiring top-account information? Please explain.
    433. What are the implications of the SROs decision not to include
top-account information for primary market transactions in the
Discussion Document? Please explain.
    434. Should the CAT NMS Plan exclude OTC Equity Securities? Please
explain. Would the exclusion of OTC Equity Securities in the CAT NMS
Plan delay the retirement of OATS? If so, by how long and what would be
the added cost be? Please provide an estimate. What are the other costs
and benefits of excluding OTC Equity Securities from the CAT NMS Plan?
    435. The CAT NMS Plan requires that CAT Reporters provide periodic
refreshes of all customer information to the Central Repository to
maintain an accurate database of customer information. What intervals
for updates would be appropriate and reasonable, and what information
should be required to be updated? Should the CAT NMS Plan remove the
requirement for periodic full submission of customer information beyond
the daily updates sent when customer information changes? Please
explain. Would broker-dealers reduce their costs if they did not have
to report all customer information periodically? Would the removal of
this requirement significantly reduce the risk of a security breach of
personally identifiable information? Please explain.
e. Alternatives to the CAT NMS Plan
    436. Do Commenters agree with the Commission's analysis of the
broad alternatives to approving the CAT NMS Plan, such as modifying
OATS and/or other data sources to meet the objectives of Rule 613?
Please explain. Are there other alternative approaches that the
Commission has not identified that it should consider? Please explain.
f. Alternatives Discussed in the CAT NMS Plan
    The Commission recognizes that the Plan discusses many alternatives
that the Commission does not analyze above, including alternatives in
Consideration 12 therein. This Consideration (Rule 613(a)(1)(xii))
requires the Participants to discuss in the Plan any reasonable
alternative approaches that the plan sponsors considered in developing
the Plan, including a description of any such alternative approach; the
relative advantages and disadvantages of each such alternative,
including an assessment of the alternative's costs and benefits; and
the basis upon which the plan sponsors selected the approach reflected
in the CAT NMS Plan. Such discussions appear in Section 12 of Appendix
C. The Commission reviewed these alternatives and has not included
above a discussion of all of the specific alternatives addressed in the
Plan. In some cases, the Commission, at this time, has no analysis to
add beyond the analysis in the Plan. In other cases, the Plan does not
require any specific alternative, so the Commission cannot analyze the
effect on the Plan of selecting a different alternative. The Commission
is soliciting comment on the alternatives discussed by the Participants
in the Plan but not discussed above. The Commission requests comment on
each of these alternatives, both in isolation and in combination, as
well as any data that would assist the Commission in evaluating the
costs and trade-offs associated with these alternatives.
    437. Organizational Structure. According to the CAT NMS Plan, the
Participants considered various organizational structures of the
Bidders.\1339\ The CAT NMS Plan notes that the Bidders have three
general organizational structures: (1) Consortiums or partnerships
(i.e., the Plan Processor would consist of more than one unaffiliated
entity that would operate the CAT), (2) single firms (i.e., one entity
would be the Plan Processor and that entity would operate the CAT as
part of its other ongoing business operations), and (3) dedicated legal
entities (i.e., Plan operations would be conducted in a separate legal
entity that would perform no other business activities). The CAT NMS
Plan notes that each type of organizational structure has strengths and
weaknesses but does not discuss those strengths and

weaknesses. The CAT NMS Plan concludes that the organizational
structure should not be a material factor in selecting a bidder and
does not mandate any specific organizational structure for the Plan
Processor.\1340\ The Commission requests comment on whether the CAT NMS
Plan should mandate a particular organizational structure. Why or why
not? How can the organizational structure of the Plan Processor affect
the costs and benefits of the CAT NMS Plan? What are the relative
strengths and weaknesses of the different organizational structures?
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    \1339\ See CAT NMS Plan, supra note 3, at Appendix C, Section
D.12(b).
    \1340\ Id.
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    438. Primary Storage. The CAT NMS Plan states that bidders proposed
two methods of primary data storage: traditionally-hosted storage
architecture and infrastructure-as-a-service.\1341\ The CAT NMS Plan
does not mandate a specific method for primary storage, but does
indicate that the storage solution would meet the security,
reliability, and accessibility requirements for the CAT, including
storage of PII data, separately. The CAT NMS Plan also indicates
several considerations in the selection of a storage solution including
maturity, cost, complexity, and reliability of the storage method. The
Commission requests comment on whether the CAT NMS Plan should mandate
a particular data storage method. Why or why not? How can the storage
method affect the costs and benefits of the Plan? What are the relative
strengths and weaknesses of the different primary storage methods?
---------------------------------------------------------------------------

    \1341\ See CAT NMS Plan, supra note 3, at Appendix C, Section
D.12(c). Traditionally-hosted storage architecture is a model in
which an organization would purchase and maintain proprietary
servers and other hardware to store CAT Data. Infrastructure-as-a-
service is a provisioning model in which an organization outsources
the equipment used to support operations, including storage,
hardware, servers, and networking components, to a third party who
charges for the service on a usage basis.
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    439. Personally Identifiable Information. The CAT NMS Plan
discusses several requirements to reduce the risk of misuse of PII,
such as multi-factor authentication \1342\ and Role Based Access
Control for access to PII; \1343\ separation of PII from other CAT
Data; restricted access to PII; and an auditable record of all access
to PII data contained in the Central Repository.\1344\ The CAT NMS Plan
notes that all bidders proposed some of these requirements, but only
some bidders proposed others. The Commission requests comment on
whether the Plan should mandate any/all of these requirements. The
Commission further requests comment on the alternatives to these
requirements. What are the potential alternative ways to protect PII?
What are the costs and benefits of those alternatives compared to the
Plan? Please provide estimates or other data to support answers.
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    \1342\ See CAT NMS Plan, supra note 3, at Appendix C, Section
D.12(e). Multifactor authentication is a mechanism that requires the
user to provide more than one factor (e.g., biometrics/personal
information in addition to a password) in order to be validated by
the system. Id.
    \1343\ See CAT NMS Plan, supra note 3, at Appendix C, Section
D.12(e). Role Based Access Control (``RBAC'') is a mechanism for
authentication in which users are assigned to one or many roles, and
each role is assigned a defined set of permissions. Id.
    \1344\ See CAT NMS Plan, supra note 3, at Appendix C, Section
D.12(e). Appendix D provides additional discussion of these PII
requirements. See id. at Appendix D, Section 4.1-4.2.
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    440. Data Ingestion Format. The Plan discusses the trade-offs
between requiring that the CAT Reporters report data to CAT in a
uniform defined format or in existing messaging protocols.\1345\ The
Plan does not require either method. A uniform defined format would
include the current process for reporting data to OATS. This is
Approach 2 in the CAT Reporters Study.\1346\ Several bidders proposed
to leverage the OATS format and enhance it to meet the requirements of
Rule 613. The Plan states that this could reduce the burden on certain
CAT Reporters (i.e., current OATS Reporters) and simplify the process
for those CAT Reporters to implement the CAT.\1347\ Accepting existing
messaging protocols would allow CAT Reporters to submit copies of their
order handling messages that are typically used across the order
lifecycle and within order management processes, such as FIX. This is
Approach 1 in the CAT Reporters' Survey.\1348\ The Plan states that
using existing messaging protocols could result in quicker
implementation times and simplify data aggregation.\1349\ The Plan
further notes that the surveys revealed no cost difference between the
two approaches,\1350\ but that FIF members prefer using the FIX
protocol.\1351\ Should the Plan specify a particular approach? Please
explain.
---------------------------------------------------------------------------

    \1345\ See CAT NMS Plan, supra note 3, at Appendix C, Section
B.7(b)(i)(A)(2); Section D.12(f). These are also called ``Approach
1'' and ``Approach 2'' in the Costs Section herein.
    \1346\ See CAT NMS Plan, supra note 3, at Appendix C, Section
B.7(b)(i)(A)(2).
    \1347\ Id. at Appendix C, Section D.12(f).
    \1348\ Id. at Appendix C, Section B.7(b)(i)(A)(2).
    \1349\ Id. at Appendix C, Section D.12(f).
    \1350\ Id.
    \1351\ Id.
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    441. The Commission requests further information on the relative
costs and benefits and strengths and weaknesses of these two data
ingestion format approaches. Would either of these approaches produce
more accurate data? For example, would using existing messaging
protocols such as FIX be more accurate because CAT Reporters would send
their messages without the possibility of adding errors when
translating them to a different format? Alternatively, would using
existing messaging protocols such as FIX be less accurate because the
Central Repository would have to translate too many different and
possibly bespoke formats into a uniform format for the CAT data? Would
a hybrid approach produce the most accurate data? \1352\ How else would
the benefits of the CAT NMS Plan differ between these approaches?
---------------------------------------------------------------------------

    \1352\ A hybrid approach would allow data to be submitted in
either a uniform defined format or using existing messaging
protocols.
---------------------------------------------------------------------------

    442. The Commission requests comment on the implementation costs of
these two data ingestion format approaches. The Commission expects that
broker-dealers would need to modify existing messaging protocols to
implement CAT regardless of which approach the Plan requires for
reporting order events. What additional implementation costs would CAT
Reporters incur to report using existing messaging protocols? What
additional implementation costs would CAT Reporters, both OATS and non-
OATS reporters, incur to report using a uniform defined format such as
a modification of OATS format? In what ways would the implementation
costs incurred at the Central Repository differ for the two approaches?
What is the estimated cost of implementing each approach for CAT
Reporters, Participants, and the Central Repository?
    443. The Commission requests comment on the ongoing costs of these
two data ingestion format approaches. How would ongoing costs be
different for the two approaches? Would CAT Reporters need to process
the order messages before reporting using existing messaging protocols
to comply with requirements such as using the listing exchange
symbology? If so, how costly is that processing? How costly is the
processing required to translate order messages into a uniform defined
format such as OATS format? What other ongoing costs associated with
these approaches would CAT Reporters incur and how would they differ
for the two approaches? How do the ongoing costs incurred by the
Central Repository differ for the two approaches? Would the translation
process from existing messaging protocols into a uniform format be more
costly for the Central

Repository relative to putting reports submitted in a uniform defined
format in a single dataset? Would the validation process associated
with existing messaging protocols be more costly for the Central
Repository than uniform defined format because of the complexity of
validating data from many different and possibly bespoke messaging
protocols? What are the estimated ongoing costs of each approach for
CAT Reporters, Participants, and the Central Repository?
    444. Process to Develop the CAT. Bidders proposed, and the Plan
describes, several processes for development of the CAT: The agile or
iterative development model, the waterfall model, and hybrid
models.\1353\ The CAT NMS Plan does not mandate a particular
development process because any of the options could be utilized to
manage the development of CAT.\1354\ The CAT NMS Plan notes that the
agile model is more flexible and more susceptible to the early delivery
of software for testing and feedback, but that the agile model makes it
more difficult to accurately estimate the effort and time required for
development. The waterfall model would also facilitate longer-term
planning and coordination among multiple vendors or project
streams.\1355\ The Commission requests comment on the strengths and
weaknesses of each development process. The Commission further requests
comment on whether the CAT NMS Plan should mandate a particular process
and the impact on the relative costs and benefits of the mandating a
particular process.
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    \1353\ See CAT NMS Plan, supra note 3, at Appendix C, Section
D.12(g). An agile methodology is an iterative model in which
development is staggered and provides for continuous evolution of
requirements and solutions. A waterfall model is a sequential