[Federal Register Volume 82, Number 239 (Thursday, December 14, 2017)]
[Notices]
[Pages 59094-59122]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27014]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82254; File No. SR-PEARL-2017-20]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
of Amendment No. 1 to a Proposed Rule Change To Amend the Fee Schedule

December 11, 2017.
    On May 1, 2017, MIAX PEARL, LLC (``MIAX PEARL'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
adopt a fee schedule to establish the fees for Industry Members related 
to the National Market System Plan Governing the Consolidated Audit 
Trail (``CAT NMS Plan''). The proposed rule change was published in the 
Federal Register for comment on May 19, 2017.\3\ The Commission 
received seven comment letters on the proposed rule change,\4\ and a 
response to

[[Page 59095]]

comments from the Participants.\5\ On June 30, 2017, the Commission 
temporarily suspended and initiated proceedings to determine whether to 
approve or disapprove the proposed rule change.\6\ The Commission 
thereafter received seven comment letters,\7\ and a response to 
comments from the Participants.\8\ On November 7, 2017, the Exchange 
filed Amendment No. 1 to the proposed rule change, as described in 
Items I and II below, which Items have been prepared by the 
Exchange.\9\ On November 9, 2017, the Commission extended the time 
period within which to approve the proposed rule change or disapprove 
the proposed rule change to January 14, 2018.\10\ The Commission is 
publishing this notice to solicit comments from interested persons on 
Amendment No. 1.\11\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 80676 (May 15, 
2017), 82 FR 23083 (May 19, 2017) (``Original Proposal'').
    \4\ Since the CAT NMS Plan Participants' proposed rule changes 
to adopt fees to be charged to Industry Members to fund the 
consolidated audit trail are substantively identical, the Commission 
is considering all comments received on the proposed rule changes 
regardless of the comment file to which they were submitted. See 
text accompanying notes 14-17 infra, for a list of the CAT NMS Plan 
Participants. See Letter from Theodore R. Lazo, Managing Director 
and Associate General Counsel, Securities Industry and Financial 
Markets Association, to Brent J. Fields, Secretary, Commission 
(dated June 6, 2017), available at: https://www.sec.gov/comments/sr-batsbzx-2017-38/batsbzx201738-1788188-153228.pdf; Letter from 
Patricia L. Cerny and Steven O'Malley, Compliance Consultants, to 
Brent J. Fields, Secretary, Commission (dated June 12, 2017), 
available at: https://www.sec.gov/comments/sr-cboe-2017-040/cboe2017040-1799253-153675.pdf; Letter from Daniel Zinn, General 
Counsel, OTC Markets Group Inc., to Eduardo A. Aleman, Assistant 
Secretary, Commission (dated June 13, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-1801717-153703.pdf; Letter from Joanna Mallers, Secretary, FIA Principal 
Traders Group, to Brent J. Fields, Secretary, Commission (dated June 
22, 2017), available at: https://www.sec.gov/comments/sr-cboe-2017-040/cboe2017040-1819670-154195.pdf; Letter from Stuart J. Kaswell, 
Executive Vice President and Managing Director, General Counsel, 
Managed Funds Association, to Brent J. Fields, Secretary, Commission 
(dated June 23, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-1822454-154283.pdf; and Letter from 
Suzanne H. Shatto, Investor, to Commission (dated June 27, 2017), 
available at: https://www.sec.gov/comments/sr-batsedgx-2017-22/batsedgx201722-154443.pdf. The Commission also received a comment 
letter which is not pertinent to these proposed rule changes. See 
Letter from Christina Crouch, Smart Ltd., to Brent J. Fields, 
Secretary, Commission (dated June 5, 2017), available at: https://www.sec.gov/comments/sr-batsbzx-2017-38/batsbzx201738-1785545-153152.htm.
    \5\ See Letter from CAT NMS Plan Participants to Brent J. 
Fields, Secretary, Commission (dated June 29, 2017), available at: 
https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-1832632-154584.pdf.
    \6\ See Securities Exchange Act Release No. 81067 (June 30, 
2017), 82 FR 31656 (July 7, 2017).
    \7\ See Letter from W. Hardy Callcott, Partner, Sidley Austin 
LLP, to Brent J. Fields, Secretary, Commission (dated July 27, 
2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2148338-157737.pdf; Letter from Kevin Coleman, 
General Counsel and Chief Compliance Officer, Belvedere Trading LLC, 
to Brent J. Fields, Secretary, Commission (dated July 28, 2017), 
available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2148360-157740.pdf; Letter from Joanna Mallers, 
Secretary, FIA Principal Traders Group, to Brent J. Fields, 
Secretary, Commission (dated July 28, 2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2151228-157745.pdf; Letter from Theodore R. Lazo, Managing Director and 
Associate General Counsel, SIFMA, to Brent J. Fields, Secretary, 
Commission (dated July 28, 2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2150977-157744.pdf; Letter 
from Stuart J. Kaswell, Executive Vice President and Managing 
Director, General Counsel, Managed Funds Association, to Brent J. 
Fields, Secretary, Commission (dated July 28, 2017), available at: 
https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2150818-157743.pdf; Letter from John Kinahan, Chief Executive 
Officer, Group One Trading, L.P., to Brent J. Fields, Secretary, 
Commission (dated August 10, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-2214568-160619.pdf; Letter from Joseph Molluso, Executive Vice President and 
CFO, Virtu Financial, to Brent J. Fields, Commission (dated August 
18, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-2238648-160830.pdf.
    \8\ See Letter from Michael Simon, Chair, CAT NMS Plan Operating 
Committee, to Brent J. Fields, Commission, Secretary (dated November 
2, 2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2674608-161412.pdf.
    \9\ Amendment No. 1 to the proposed rule change replaces and 
supersedes the Original Proposal in its entirety.
    \10\ See Securities Exchange Act Release No. 82049 (November 9, 
2017), 82 FR 53549 (November 16, 2017).
    \11\ The Commission notes that on December 1, 2017, the Exchange 
filed Amendment No. 2 to the proposed rule change. Amendment No. 2 
is a partial amendment to the proposed rule change, as amended by 
Amendment No. 1. Amendment No. 2 proposes to change the 
parenthetical regarding the OTC Equity Securities discount in 
paragraph (b)(2) of the proposed fee schedule from ``with a discount 
for Equity ATSs exclusively trading OTC Equity Securities based on 
the average shares per trade ratio between NMS Stocks and OTC Equity 
Securities'' to ``with a discount for OTC Equity Securities market 
share of Equity ATSs trading OTC Equity Securities based on the 
average shares per trade ratio between NMS Stocks and OTC Equity 
Securities.'' See Securities Exchange Act Release No. 82255 
(December 11, 2017).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    On May 1, 2017, MIAX PEARL, LLC (``MIAX PEARL'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'' or 
``SEC'') a proposed rule change SR-PEARL-2017-20 (the ``Original 
Proposal''),\12\ to amend the MIAX PEARL Fee Schedule (the ``Fee 
Schedule'') to adopt a fee schedule to establish the fees for Industry 
Members related to the National Market System Plan Governing the 
Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'').\13\ MIAX 
PEARL files this proposed rule change (the ``Amendment'') to amend the 
Original Proposal. This Amendment replaces the Original Proposal in its 
entirety, and also describes the changes from the Original Proposal.
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    \12\ See Securities Exchange Act Release No. 80676 (May 15, 
2017), 82 FR 23083 (May 19, 2017)(SR-PEARL-2017-20).
    \13\ Unless otherwise specified, capitalized terms used in this 
fee filing are defined as set forth herein, in the CAT Compliance 
Rule Series, the CAT NMS Plan, or the Original Proposal.
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    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl, at MIAX's 
principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    BOX Options Exchange LLC, Cboe BYX Exchange, Inc., Cboe BZX 
Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., 
Cboe C2 Exchange, Inc., Cboe Exchange, Inc.,\14\ Chicago Stock 
Exchange, Inc., Financial Industry Regulatory Authority, Inc. 
(``FINRA''), Investors' Exchange LLC, Miami International Securities 
Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, 
Nasdaq ISE, LLC, Nasdaq MRX, LLC,\15\ NASDAQ PHLX LLC, The NASDAQ Stock 
Market LLC, New York Stock Exchange LLC, NYSE American LLC,\16\ NYSE 
Arca, Inc. and NYSE National, Inc.\17\ (collectively, the 
``Participants'') filed with the Commission, pursuant to Section 11A of 
the Exchange Act \18\ and Rule 608 of Regulation NMS thereunder,\19\ 
the CAT NMS Plan.\20\ The Participants filed the Plan to comply with 
Rule 613 of Regulation NMS under the Exchange Act. The Plan was 
published for

[[Page 59096]]

comment in the Federal Register on May 17, 2016,\21\ and approved by 
the Commission, as modified, on November 15, 2016.\22\ The Plan is 
designed to create, implement and maintain a consolidated audit trail 
(``CAT'') that would capture customer and order event information for 
orders in NMS Securities and OTC Equity Securities, across all markets, 
from the time of order inception through routing, cancellation, 
modification, or execution in a single consolidated data source. The 
Plan accomplishes this by creating CAT NMS, LLC (the ``Company''), of 
which each Participant is a member, to operate the CAT.\23\ Under the 
CAT NMS Plan, the Operating Committee of the Company (``Operating 
Committee'') has discretion to establish funding for the Company to 
operate the CAT, including establishing fees that the Participants will 
pay, and establishing fees for Industry Members that will be 
implemented by the Participants (``CAT Fees'').\24\ The Participants 
are required to file with the SEC under Section 19(b) of the Exchange 
Act any such CAT Fees applicable to Industry Members that the Operating 
Committee approves.\25\ Accordingly, the Exchange submitted the 
Original Proposal to propose the Consolidated Audit Trail Funding Fees, 
which would require Industry Members that are Exchange members to pay 
the CAT Fees determined by the Operating Committee.
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    \14\ Note that Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., 
Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., C2 Options 
Exchange, Incorporated and Chicago Board Options Exchange, 
Incorporated, have been renamed Cboe BYX Exchange, Inc., Cboe BZX 
Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., 
Cboe C2 Exchange, Inc. and Cboe Exchange, Inc., respectively.
    \15\ ISE Gemini, LLC, ISE Mercury, LLC and International 
Securities Exchange, LLC have been renamed Nasdaq GEMX, LLC, Nasdaq 
MRX, LLC, and Nasdaq ISE, LLC, respectively. See Securities Exchange 
Act Rel. No. 80248 (Mar. 15, 2017), 82 FR 14547 (Mar. 21, 2017); 
Securities Exchange Act Rel. No. 80326 (Mar. 29, 2017), 82 FR 16460 
(Apr. 4, 2017); and Securities Exchange Act Rel. No. 80325 (Mar. 29, 
2017), 82 FR 16445 (Apr. 4, 2017).
    \16\ NYSE MKT LLC has been renamed NYSE American LLC. See 
Securities Exchange Act Rel. No. 80283 (Mar. 21. 2017), 82 FR 15244 
(Mar. 27, 2017).
    \17\ National Stock Exchange, Inc. has been renamed NYSE 
National, Inc. See Securities Exchange Act Rel. No. 79902 (Jan. 30, 
2017), 82 FR 9258 (Feb. 3, 2017).
    \18\ 15 U.S.C. 78k-1.
    \19\ 17 CFR 242.608.
    \20\ See Letter from the Participants to Brent J. Fields, 
Secretary, Commission, dated September 30, 2014; and Letter from 
Participants to Brent J. Fields, Secretary, Commission, dated 
February 27, 2015. On December 24, 2015, the Participants submitted 
an amendment to the CAT NMS Plan. See Letter from Participants to 
Brent J. Fields, Secretary, Commission, dated December 23, 2015.
    \21\ See Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 
81 FR 30614 (May 17, 2016).
    \22\ See Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 
81 FR 84696 (Nov. 23, 2016) (``Approval Order'').
    \23\ The Plan also serves as the limited liability company 
agreement for the Company.
    \24\ Section 11.1(b) of the CAT NMS Plan.
    \25\ Id.
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    The Commission published the Original Proposal for public comment 
in the Federal Register on May 19, 2017,\26\ and received comments in 
response to the Original Proposal or similar fee filings by other 
Participants.\27\ On June 30, 2017, the Commission suspended, and 
instituted proceedings to determine whether to approve or disapprove, 
the Original Proposal.\28\ The Commission received seven comment 
letters in response to those proceedings.\29\
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    \26\ Supra note 3.
    \27\ For a summary of comments, see generally Securities 
Exchange Act Rel. No. 81067 (June 30, 2017), 82 FR 31656 (July 7, 
2017) (``Suspension Order'').
    \28\ Suspension Order.
    \29\ See Letter from Stuart J. Kaswell, Executive Vice 
President, Managing Director and General Counsel, Managed Funds 
Association, to Brent J. Fields, Secretary, SEC (July 28, 2017) 
(``MFA Letter''); Letter from Theodore R. Lazo, Managing Director 
and Associate General Counsel, SIFMA, to Brent J. Fields, Secretary, 
SEC (July 28, 2017) (``SIFMA Letter''); Joanna Mallers, Secretary, 
FIA Principal Traders Group, to Brent J. Fields, Secretary, SEC 
(July 28, 2017) (``FIA Principal Traders Group Letter''); Letter 
from Kevin Coleman, General Counsel & Chief Compliance Officer, 
Belvedere Trading LLC, to Brent J. Fields, Secretary, SEC (July 28, 
2017) (``Belvedere Letter''); Letter from W. Hardy Callcott, Sidley 
Austin LLP, to Brent J. Fields, Secretary, SEC (July 27, 2017) 
(``Sidley Letter''); Letter from John Kinahan, Chief Executive 
Officer, Group One Trading, L.P., to Brent J. Fields, Secretary, SEC 
(Aug. 10, 2017) (``Group One Letter''); and Letter from Joseph 
Molluso, Executive Vice President, Virtu Financial, to Brent J. 
Fields, Secretary, SEC (Aug. 18, 2017) (``Virtu Financial Letter'').
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    In response to the comments on the Original Proposal, the Operating 
Committee determined to make the following changes to the funding 
model: (1) Add two additional CAT Fee tiers for Equity Execution 
Venues; (2) discount the market share of Execution Venue ATSs 
exclusively trading OTC Equity Securities as well as the market share 
of the FINRA over-the-counter reporting facility (``ORF'') by the 
average shares per trade ratio between NMS Stocks and OTC Equity 
Securities (calculated as 0.17% based on available data from the second 
quarter of 2017) when calculating the market share of Execution Venue 
ATS exclusively trading OTC Equity Securities and FINRA; (3) discount 
the Options Market Maker quotes by the trade to quote ratio for options 
(calculated as 0.01% based on available data for June 2016 through June 
2017) when calculating message traffic for Options Market Makers; (4) 
discount equity market maker quotes by the trade to quote ratio for 
equities (calculated as 5.43% based on available data for June 2016 
through June 2017) when calculating message traffic for equity market 
makers; (5) decrease the number of tiers for Industry Members (other 
than the Execution Venue ATSs) from nine to seven; (6) change the 
allocation of CAT costs between Equity Execution Venues and Options 
Execution Venues from 75%/25% to 67%/33%; (7) adjust tier percentages 
and recovery allocations for Equity Execution Venues, Options Execution 
Venues and Industry Members (other than Execution Venue ATSs); (8) 
focus the comparability of CAT Fees on the individual entity level, 
rather than primarily on the comparability of affiliated entities; (9) 
commence invoicing CAT Reporters as promptly as possible following the 
latest operative date of the respective Consolidated Audit Trail 
Funding Fees filed or to be filed by each of the Participants and the 
operative date of the CAT NMS Plan amendment adopting CAT Fees for 
Participants; and (10) require the proposed fees to automatically 
expire two years from the operative date of the CAT NMS Plan amendment 
adopting CAT Fees for Participants. As discussed in detail below, the 
Exchange proposes to amend the Original Proposal to reflect these 
changes.
(1) Executive Summary
    The following provides an executive summary of the CAT funding 
model approved by the Operating Committee, as well as Industry Members' 
rights and obligations related to the payment of CAT Fees calculated 
pursuant to the CAT funding model, as amended by this Amendment. A 
detailed description of the CAT funding model and the CAT Fees, as 
amended by this Amendment, as well as the changes made to the Original 
Proposal follows this executive summary.
(A) CAT Funding Model
     CAT Costs. The CAT funding model is designed to establish 
CAT-specific fees to collectively recover the costs of building and 
operating the CAT from all CAT Reporters, including Industry Members 
and Participants. The overall CAT costs used in calculating the CAT 
Fees in this fee filing are comprised of Plan Processor CAT costs and 
non-Plan Processor CAT costs incurred, and estimated to be incurred, 
from November 21, 2016 through November 21, 2017. Although the CAT 
costs from November 21, 2016 through November 21, 2017 were used in 
calculating the CAT Fees, the CAT Fees set forth in this fee filing 
would be in effect until the automatic sunset date, as discussed below. 
(See Section 3(a)(2)(E) below)
     Bifurcated Funding Model. The CAT NMS Plan requires a 
bifurcated funding model, where costs associated with building and 
operating the CAT would be borne by (1) Participants and Industry 
Members that are Execution Venues for Eligible Securities through fixed 
tier fees based on market share, and (2) Industry Members (other than 
alternative trading systems (``ATSs'') that execute transactions in 
Eligible Securities (``Execution Venue ATSs'')) through fixed tier fees 
based on message traffic for Eligible Securities. (See Section 3(a)(2) 
below)
     Industry Member Fees. Each Industry Member (other than 
Execution Venue ATSs) will be placed into one of seven tiers of fixed 
fees, based on ``message traffic'' in Eligible Securities for a defined 
period (as discussed below). Prior to the start of CAT reporting, 
``message traffic'' will be comprised of historical equity and equity 
options orders, cancels, quotes and executions provided by each 
exchange and FINRA over the previous three months. After an Industry 
Member

[[Page 59097]]

begins reporting to the CAT, ``message traffic'' will be calculated 
based on the Industry Member's Reportable Events reported to the CAT. 
Industry Members with lower levels of message traffic will pay a lower 
fee and Industry Members with higher levels of message traffic will pay 
a higher fee. To avoid disincentives to quoting behavior, Options 
Market Maker and equity market maker quotes will be discounted when 
calculating message traffic. (See Section 3(a)(2)(B) below)
     Execution Venue Fees. Each Equity Execution Venue will be 
placed in one of four tiers of fixed fees based on market share, and 
each Options Execution Venue will be placed in one of two tiers of 
fixed fees based on market share. Equity Execution Venue market share 
will be determined by calculating each Equity Execution Venue's 
proportion of the total volume of NMS Stock and OTC Equity shares 
reported by all Equity Execution Venues during the relevant time 
period. For purposes of calculating market share, the market share of 
Execution Venue ATSs exclusively trading OTC Equity Securities as well 
as the market share of the FINRA ORF will be discounted. Similarly, 
market share for Options Execution Venues will be determined by 
calculating each Options Execution Venue's proportion of the total 
volume of Listed Options contracts reported by all Options Execution 
Venues during the relevant time period. Equity Execution Venues with a 
larger market share will pay a larger CAT Fee than Equity Execution 
Venues with a smaller market share. Similarly, Options Execution Venues 
with a larger market share will pay a larger CAT Fee than Options 
Execution Venues with a smaller market share. (See Section 3(a)(2)(C) 
below)
     Cost Allocation. For the reasons discussed below, in 
designing the model, the Operating Committee determined that 75 percent 
of total costs recovered would be allocated to Industry Members (other 
than Execution Venue ATSs) and 25 percent would be allocated to 
Execution Venues. In addition, the Operating Committee determined to 
allocate 67 percent of Execution Venue costs recovered to Equity 
Execution Venues and 33 percent to Options Execution Venues. (See 
Section 3(a)(2)(D) below)
     Comparability of Fees. The CAT funding model charges CAT 
Reporters with the most CAT-related activity (measured by market share 
and/or message traffic, as applicable) comparable CAT Fees. (See 
Section 3(a)(2)(F) below)
(B) CAT Fees for Industry Members
     Fee Schedule. The quarterly CAT Fees for each tier for 
Industry Members are set forth in the two fee schedules in the 
Consolidated Audit Trail Funding Fees, one for Equity ATSs and one for 
Industry Members other than Equity ATSs. (See Section 3(a)(3)(B) below)
     Quarterly Invoices. Industry Members will be billed 
quarterly for CAT Fees, with the invoices payable within 30 days. The 
quarterly invoices will identify within which tier the Industry Member 
falls. (See Section 3(a)(3)(C) below)
     Centralized Payment. Each Industry Member will receive 
from the Company one invoice for its applicable CAT Fees, not separate 
invoices from each Participant of which it is a member. Each Industry 
Member will pay its CAT Fees to the Company via the centralized system 
for the collection of CAT Fees established by the Operating Committee. 
(See Section 3(a)(3)(C) below)
     Billing Commencement. Industry Members will begin to 
receive invoices for CAT Fees as promptly as possible following the 
latest of the operative date of the Consolidated Audit Trail Funding 
Fees for each of the Participants and the operative date of the Plan 
amendment adopting CAT Fees for Participants. (See Section 3(a)(2)(G) 
below)
     Sunset Provision. The Consolidated Audit Trail Funding 
Fees will sunset automatically two years from the operative date of the 
CAT NMS Plan amendment adopting CAT Fees for Participants. (See Section 
3(a)(2)(J) below)
(2) Description of the CAT Funding Model
    Article XI of the CAT NMS Plan requires the Operating Committee to 
approve the operating budget, including projected costs of developing 
and operating the CAT for the upcoming year. In addition to a budget, 
Article XI of the CAT NMS Plan provides that the Operating Committee 
has discretion to establish funding for the Company, consistent with a 
bifurcated funding model, where costs associated with building and 
operating the Central Repository would be borne by (1) Participants and 
Industry Members that are Execution Venues through fixed tier fees 
based on market share, and (2) Industry Members (other than Execution 
Venue ATSs) through fixed tier fees based on message traffic. In its 
order approving the CAT NMS Plan, the Commission determined that the 
proposed funding model was ``reasonable'' \30\ and ``reflects a 
reasonable exercise of the Participants' funding authority to recover 
the Participants' costs related to the CAT.'' \31\
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    \30\ Approval Order at 84796.
    \31\ Id. at 84794.
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    More specifically, the Commission stated in approving the CAT NMS 
Plan that ``[t]he Commission believes that the proposed funding model 
is reasonably designed to allocate the costs of the CAT between the 
Participants and Industry Members.'' \32\ The Commission further noted 
the following:
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    \32\ Id. at 84795.

    The Commission believes that the proposed funding model reflects 
a reasonable exercise of the Participants' funding authority to 
recover the Participants' costs related to the CAT. The CAT is a 
regulatory facility jointly owned by the Participants and . . . the 
Exchange Act specifically permits the Participants to charge their 
members fees to fund their self-regulatory obligations. The 
Commission further believes that the proposed funding model is 
designed to impose fees reasonably related to the Participants' 
self-regulatory obligations because the fees would be directly 
associated with the costs of establishing and maintaining the CAT, 
and not unrelated SRO services.\33\
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    \33\ Id. at 84794.

Accordingly, the funding model approved by the Operating Committee 
imposes fees on both Participants and Industry Members.
    As discussed in Appendix C of the CAT NMS Plan, in developing and 
approving the approved funding model, the Operating Committee 
considered the advantages and disadvantages of a variety of alternative 
funding and cost allocation models before selecting the proposed 
model.\34\ After analyzing the various alternatives, the Operating 
Committee determined that the proposed tiered, fixed fee funding model 
provides a variety of advantages in comparison to the alternatives.
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    \34\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
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    In particular, the fixed fee model, as opposed to a variable fee 
model, provides transparency, ease of calculation, ease of billing and 
other administrative functions, and predictability of a fixed fee. Such 
factors are crucial to estimating a reliable revenue stream for the 
Company and for permitting CAT Reporters to reasonably predict their 
payment obligations for budgeting purposes. Additionally, a strictly 
variable or metered funding model based on message volume would be far 
more likely to affect market behavior and place an inappropriate burden 
on competition.
    Reviews from varying time periods of current broker-dealer order 
and trading

[[Page 59098]]

data submitted under existing reporting requirements showed a wide 
range in activity among broker-dealers, with a number of broker-dealers 
submitting fewer than 1,000 orders per month and other broker-dealers 
submitting millions and even billions of orders in the same period. 
Accordingly, the CAT NMS Plan includes a tiered approach to fees. The 
tiered approach helps ensure that fees are equitably allocated among 
similarly situated CAT Reporters and furthers the goal of lessening the 
impact on smaller firms.\35\ In addition, in choosing a tiered fee 
structure, the Operating Committee concluded that the variety of 
benefits offered by a tiered fee structure, discussed above, outweighed 
the fact that CAT Reporters in any particular tier would pay different 
rates per message traffic order event or per market share (e.g., an 
Industry Member with the largest amount of message traffic in one tier 
would pay a smaller amount per order event than an Industry Member in 
the same tier with the least amount of message traffic). Such variation 
is the natural result of a tiered fee structure.\36\ The Operating 
Committee considered several approaches to developing a tiered model, 
including defining fee tiers based on such factors as size of firm, 
message traffic or trading dollar volume. After analyzing the 
alternatives, it concluded that the tiering should be based on message 
traffic which will reflect the relative impact of CAT Reporters on the 
CAT System.
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    \35\ Id.
    \36\ Moreover, as the SEC noted in approving the CAT NMS Plan, 
``[t]he Participants also have offered a reasonable basis for 
establishing a funding model based on broad tiers, in that it may be 
easier to implement.'' Approval Order at 84796.
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    Accordingly, the CAT NMS Plan contemplates that costs will be 
allocated across the CAT Reporters on a tiered basis in order to 
allocate higher costs to those CAT Reporters that contribute more to 
the costs of creating, implementing and maintaining the CAT and lower 
costs to those that contribute less.\37\ The fees to be assessed at 
each tier are calculated so as to recoup a proportion of costs 
appropriate to the message traffic or market share (as applicable) from 
CAT Reporters in each tier. Therefore, Industry Members generating the 
most message traffic will be in the higher tiers, and will be charged a 
higher fee. Industry Members with lower levels of message traffic will 
be in lower tiers and will be assessed a smaller fee for the CAT.\38\ 
Correspondingly, Execution Venues with the highest market shares will 
be in the top tier, and will be charged higher fees. Execution Venues 
with the lowest market shares will be in the lowest tier and will be 
assessed smaller fees for the CAT.\39\
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    \37\ Approval Order at 85005.
    \38\ Id.
    \39\ Id.
---------------------------------------------------------------------------

    The CAT NMS Plan states that Industry Members (other than Execution 
Venue ATSs) will be charged based on message traffic, and that 
Execution Venues will be charged based on market share.\40\ While there 
are multiple factors that contribute to the cost of building, 
maintaining and using the CAT, processing and storage of incoming 
message traffic is one of the most significant cost drivers for the 
CAT.\41\ Thus, the CAT NMS Plan provides that the fees payable by 
Industry Members (other than Execution Venue ATSs) will be based on the 
message traffic generated by such Industry Member.\42\
---------------------------------------------------------------------------

    \40\ Section 11.3(a) and (b) of the CAT NMS Plan.
    \41\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85005.
    \42\ Section 11.3(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

    In contrast to Industry Members, which determine the degree to 
which they produce message traffic that constitutes CAT Reportable 
Events, the CAT Reportable Events of the Execution Venues are largely 
derivative of quotations and orders received from Industry Members that 
they are required to display. The business model for Execution Venues 
(other than FINRA), however, is focused on executions in their markets. 
As a result, the Operating Committee believes that it is more equitable 
to charge Execution Venues based on their market share rather than 
their message traffic.
    Focusing on message traffic would make it more difficult to draw 
distinctions between large and small Execution Venues and, in 
particular, between large and small options exchanges. For instance, 
the Operating Committee analyzed the message traffic of Execution 
Venues and Industry Members for the period of April 2017 to June 2017 
and placed all CAT Reporters into a nine-tier framework (i.e., a single 
tier may include both Execution Venues and Industry Members). The 
Operating Committee's analysis found that the majority of exchanges (15 
total) were grouped in Tiers 1 and 2. Moreover, virtually all of the 
options exchanges were in Tiers 1 and 2.\43\ Given the resulting 
concentration of options exchanges in Tiers 1 and 2 under this 
approach, the analysis shows that a funding model for Execution Venues 
based on message traffic would make it more difficult to distinguish 
between large and small options exchanges, as compared to the proposed 
fee approach that bases fees for Execution Venues on market share.
---------------------------------------------------------------------------

    \43\ The Operating Committee notes that this analysis did not 
place MIAX PEARL in Tier 1 or Tier 2 since the exchange commenced 
trading on February 6, 2017.
---------------------------------------------------------------------------

    The CAT NMS Plan's funding model also is structured to avoid a 
``reduction in market quality.'' \44\ The tiered, fixed fee funding 
model is designed to limit the disincentives to providing liquidity to 
the market. For example, the Operating Committee expects that a firm 
that has a large volume of quotes would likely be categorized in one of 
the upper tiers, and would not be assessed a fee for this traffic 
directly as they would under a more directly metered model. In 
contrast, strictly variable or metered funding models based on message 
volume are far more likely to affect market behavior. In approving the 
CAT NMS Plan, the SEC stated that ``[t]he Participants also offered a 
reasonable basis for establishing a funding model based on broad tiers, 
in that it may be less likely to have an incremental deterrent effect 
on liquidity provision.'' \45\
---------------------------------------------------------------------------

    \44\ Section 11.2(e) of the CAT NMS Plan.
    \45\ Approval Order at 84796.
---------------------------------------------------------------------------

    The funding model also is structured to avoid a reduction market 
quality because it discounts Options Market Maker and equity market 
maker quotes when calculating message traffic for Options Market Makers 
and equity market makers, respectively. As discussed in more detail 
below, the Operating Committee determined to discount the Options 
Market Maker quotes by the trade to quote ratio for options when 
calculating message traffic for Options Market Makers. Similarly, to 
avoid disincentives to quoting behavior on the equities side as well, 
the Operating Committee determined to discount equity market maker 
quotes by the trade to quote ratio for equities when calculating 
message traffic for equity market makers. The proposed discounts 
recognize the value of the market makers' quoting activity to the 
market as a whole.
    The CAT NMS Plan is further structured to avoid potential conflicts 
raised by the Operating Committee determining fees applicable to its 
own members--the Participants. First, the Company will operate on a 
``break-even'' basis, with fees imposed to cover costs and an 
appropriate reserve. Any surpluses will be treated as an operational 
reserve to offset future fees and will not be distributed to the 
Participants as profits.\46\ To ensure that the Participants' operation 
of the CAT will not contribute to the funding of their other 
operations, Section 11.1(c) of

[[Page 59099]]

the CAT NMS Plan specifically states that ``[a]ny surplus of the 
Company's revenues over its expenses shall be treated as an operational 
reserve to offset future fees.'' In addition, as set forth in Article 
VIII of the CAT NMS Plan, the Company ``intends to operate in a manner 
such that it qualifies as a `business league' within the meaning of 
Section 501(c)(6) of the [Internal Revenue] Code.'' To qualify as a 
business league, an organization must ``not [be] organized for profit 
and no part of the net earnings of [the organization can] inure[ ] to 
the benefit of any private shareholder or individual.'' \47\ As the SEC 
stated when approving the CAT NMS Plan, ``the Commission believes that 
the Company's application for Section 501(c)(6) business league status 
addresses issues raised by commenters about the Plan's proposed 
allocation of profit and loss by mitigating concerns that the Company's 
earnings could be used to benefit individual Participants.'' \48\ The 
Internal Revenue Service recently has determined that the Company is 
exempt from federal income tax under Section 501(c)(6) of the Internal 
Revenue Code.
---------------------------------------------------------------------------

    \46\ Id. at 84792.
    \47\ 26 U.S.C. 501(c)(6).
    \48\ Approval Order at 84793.
---------------------------------------------------------------------------

    The funding model also is structured to take into account 
distinctions in the securities trading operations of Participants and 
Industry Members. For example, the Operating Committee designed the 
model to address the different trading characteristics in the OTC 
Equity Securities market. Specifically, the Operating Committee 
proposes to discount the market share of Execution Venue ATSs 
exclusively trading OTC Equity Securities as well as the market share 
of the FINRA ORF by the average shares per trade ratio between NMS 
Stocks and OTC Equity Securities to adjust for the greater number of 
shares being traded in the OTC Equity Securities market, which is 
generally a function of a lower per share price for OTC Equity 
Securities when compared to NMS Stocks. In addition, the Operating 
Committee also proposes to discount Options Market Maker and equity 
market maker message traffic in recognition of their role in the 
securities markets. Furthermore, the funding model creates separate 
tiers for Equity and Options Execution Venues due to the different 
trading characteristics of those markets.
    Finally, by adopting a CAT-specific fee, the Operating Committee 
will be fully transparent regarding the costs of the CAT. Charging a 
general regulatory fee, which would be used to cover CAT costs as well 
as other regulatory costs, would be less transparent than the selected 
approach of charging a fee designated to cover CAT costs only.
    A full description of the funding model is set forth below. This 
description includes the framework for the funding model as set forth 
in the CAT NMS Plan, as well as the details as to how the funding model 
will be applied in practice, including the number of fee tiers and the 
applicable fees for each tier. The complete funding model is described 
below, including those fees that are to be paid by the Participants. 
The proposed Consolidated Audit Trail Funding Fees, however, do not 
apply to the Participants; the proposed Consolidated Audit Trail 
Funding Fees only apply to Industry Members. The CAT Fees for 
Participants will be imposed separately by the Operating Committee 
pursuant to the CAT NMS Plan.
(A) Funding Principles
    Section 11.2 of the CAT NMS Plan sets forth the principles that the 
Operating Committee applied in establishing the funding for the 
Company. The Operating Committee has considered these funding 
principles as well as the other funding requirements set forth in the 
CAT NMS Plan and in Rule 613 in developing the proposed funding model. 
The following are the funding principles in Section 11.2 of the CAT NMS 
Plan:
     To create transparent, predictable revenue streams for the 
Company that are aligned with the anticipated costs to build, operate 
and administer the CAT and other costs of the Company;
     To establish an allocation of the Company's related costs 
among Participants and Industry Members that is consistent with the 
Exchange Act, taking into account the timeline for implementation of 
the CAT and distinctions in the securities trading operations of 
Participants and Industry Members and their relative impact upon the 
Company's resources and operations;
     To establish a tiered fee structure in which the fees 
charged to: (i) CAT Reporters that are Execution Venues, including 
ATSs, are based upon the level of market share; (ii) Industry Members' 
non-ATS activities are based upon message traffic; (iii) the CAT 
Reporters with the most CAT-related activity (measured by market share 
and/or message traffic, as applicable) are generally comparable (where, 
for these comparability purposes, the tiered fee structure takes into 
consideration affiliations between or among CAT Reporters, whether 
Execution Venue and/or Industry Members);
     To provide for ease of billing and other administrative 
functions;
     To avoid any disincentives such as placing an 
inappropriate burden on competition and a reduction in market quality; 
and
     To build financial stability to support the Company as a 
going concern.
(B) Industry Member Tiering
    Under Section 11.3(b) of the CAT NMS Plan, the Operating Committee 
is required to establish fixed fees to be payable by Industry Members, 
based on message traffic generated by such Industry Member, with the 
Operating Committee establishing at least five and no more than nine 
tiers.
    The CAT NMS Plan clarifies that the fixed fees payable by Industry 
Members pursuant to Section 11.3(b) shall, in addition to any other 
applicable message traffic, include message traffic generated by: (i) 
An ATS that does not execute orders that is sponsored by such Industry 
Member; and (ii) routing orders to and from any ATS sponsored by such 
Industry Member. In addition, the Industry Member fees will apply to 
Industry Members that act as routing broker-dealers for exchanges. The 
Industry Member fees will not be applicable, however, to an ATS that 
qualifies as an Execution Venue, as discussed in more detail in the 
section on Execution Venue tiering.
    In accordance with Section 11.3(b), the Operating Committee 
approved a tiered fee structure for Industry Members (other than 
Execution Venue ATSs) as described in this section. In determining the 
tiers, the Operating Committee considered the funding principles set 
forth in Section 11.2 of the CAT NMS Plan, seeking to create funding 
tiers that take into account the relative impact on CAT System 
resources of different Industry Members, and that establish comparable 
fees among the CAT Reporters with the most Reportable Events. The 
Operating Committee has determined that establishing seven tiers 
results in an allocation of fees that distinguishes between Industry 
Members with differing levels of message traffic. Thus, each such 
Industry Member will be placed into one of seven tiers of fixed fees, 
based on ``message traffic'' for a defined period (as discussed below).
    A seven tier structure was selected to provide a wide range of 
levels for tiering Industry Members such that Industry Members 
submitting significantly less message traffic to the CAT would be 
adequately differentiated from Industry

[[Page 59100]]

Members submitting substantially more message traffic. The Operating 
Committee considered historical message traffic from multiple time 
periods, generated by Industry Members across all exchanges and as 
submitted to FINRA's Order Audit Trail System (``OATS''), and 
considered the distribution of firms with similar levels of message 
traffic, grouping together firms with similar levels of message 
traffic. Based on this, the Operating Committee determined that seven 
tiers would group firms with similar levels of message traffic, 
charging those firms with higher impact on the CAT more, while lowering 
the burden on Industry Members that have less CAT-related activity. 
Furthermore, the selection of seven tiers establishes comparable fees 
among the largest CAT Reporters.
    Each Industry Member (other than Execution Venue ATSs) will be 
ranked by message traffic and tiered by predefined Industry Member 
percentages (the ``Industry Member Percentages''). The Operating 
Committee determined to use predefined percentages rather than fixed 
volume thresholds to ensure that the total CAT Fees collected recover 
the expected CAT costs regardless of changes in the total level of 
message traffic. To determine the fixed percentage of Industry Members 
in each tier, the Operating Committee analyzed historical message 
traffic generated by Industry Members across all exchanges and as 
submitted to OATS, and considered the distribution of firms with 
similar levels of message traffic, grouping together firms with similar 
levels of message traffic. Based on this, the Operating Committee 
identified seven tiers that would group firms with similar levels of 
message traffic.
    The percentage of costs recovered by each Industry Member tier will 
be determined by predefined percentage allocations (the ``Industry 
Member Recovery Allocation''). In determining the fixed percentage 
allocation of costs recovered for each tier, the Operating Committee 
considered the impact of CAT Reporter message traffic on the CAT System 
as well as the distribution of total message volume across Industry 
Members while seeking to maintain comparable fees among the largest CAT 
Reporters. Accordingly, following the determination of the percentage 
of Industry Members in each tier, the Operating Committee identified 
the percentage of total market volume for each tier based on the 
historical message traffic upon which Industry Members had been 
initially ranked. Taking this into account along with the resulting 
percentage of total recovery, the percentage allocation of costs 
recovered for each tier were assigned, allocating higher percentages of 
recovery to tiers with higher levels of message traffic while avoiding 
any inappropriate burden on competition. Furthermore, by using 
percentages of Industry Members and costs recovered per tier, the 
Operating Committee sought to include elasticity within the funding 
model, allowing the funding model to respond to changes in either the 
total number of Industry Members or the total level of message traffic.
    The following chart illustrates the breakdown of seven Industry 
Member tiers across the monthly average of total equity and equity 
options orders, cancels, quotes and executions in the second quarter of 
2017 as well as message traffic thresholds between the largest of 
Industry Member message traffic gaps. The Operating Committee 
referenced similar distribution illustrations to determine the 
appropriate division of Industry Member percentages in each tier by 
considering the grouping of firms with similar levels of message 
traffic and seeking to identify relative breakpoints in the message 
traffic between such groupings. In reviewing the chart and its 
corresponding table, note that while these distribution illustrations 
were referenced to help differentiate between Industry Member tiers, 
the proposed funding model is driven by fixed percentages of Industry 
Members across tiers to account for fluctuating levels of message 
traffic over time. This approach also provides financial stability for 
the CAT by ensuring that the funding model will recover the required 
amounts regardless of changes in the number of Industry Members or the 
amount of message traffic. Actual messages in any tier will vary based 
on the actual traffic in a given measurement period, as well as the 
number of firms included in the measurement period. The Industry Member 
Percentages and Industry Member Recovery Allocation for each tier will 
remain fixed with each Industry Member's tier to be reassigned 
periodically, as described below in Section 3(a)(2)(I).

[[Page 59101]]

[GRAPHIC] [TIFF OMITTED] TN14DE17.008


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

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

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

    For the purposes of creating these tiers based on message traffic, 
the Operating Committee determined to define the term ``message 
traffic'' separately for the period before the commencement of CAT 
reporting and for the period after the start of CAT reporting. The 
different definition for message traffic is necessary as there will

[[Page 59102]]

be no Reportable Events as defined in the Plan, prior to the 
commencement of CAT reporting. Accordingly, prior to the start of CAT 
reporting, ``message traffic'' will be comprised of historical equity 
and equity options orders, cancels, quotes and executions provided by 
each exchange and FINRA over the previous three months. Prior to the 
start of CAT reporting, orders would be comprised of the total number 
of equity and equity options orders received and originated by a member 
of an exchange or FINRA over the previous three-month period, including 
principal orders, cancel/replace orders, market maker orders originated 
by a member of an exchange, and reserve (iceberg) orders as well as 
executions originated by a member of FINRA, and excluding order 
rejects, system-modified orders, order routes and implied orders.\49\ 
In addition, prior to the start of CAT reporting, cancels would be 
comprised of the total number of equity and equity option cancels 
received and originated by a member of an exchange or FINRA over a 
three-month period, excluding order modifications (e.g., order updates, 
order splits, partial cancels) and multiple cancels of a complex order. 
Furthermore, prior to the start of CAT reporting, quotes would be 
comprised of information readily available to the exchanges and FINRA, 
such as the total number of historical equity and equity options quotes 
received and originated by a member of an exchange or FINRA over the 
prior three-month period. Additionally, prior to the start of CAT 
reporting, executions would be comprised of the total number of equity 
and equity option executions received or originated by a member of an 
exchange or FINRA over a three-month period.
---------------------------------------------------------------------------

    \49\ Consequently, firms that do not have ``message traffic'' 
reported to an exchange or OATS before they are reporting to the CAT 
would not be subject to a fee until they begin to report information 
to CAT.
---------------------------------------------------------------------------

    After an Industry Member begins reporting to the CAT, ``message 
traffic'' will be calculated based on the Industry Member's Reportable 
Events reported to the CAT as will be defined in the Technical 
Specifications.\50\
---------------------------------------------------------------------------

    \50\ If an Industry Member (other than an Execution Venue ATS) 
has no orders, cancels, quotes and executions prior to the 
commencement of CAT Reporting, or no Reportable Events after CAT 
reporting commences, then the Industry Member would not have a CAT 
Fee obligation.
---------------------------------------------------------------------------

    Quotes of Options Market Makers and equity market makers will be 
included in the calculation of total message traffic for those market 
makers for purposes of tiering under the CAT funding model both prior 
to CAT reporting and once CAT reporting commences.\51\ To address 
potential concerns regarding burdens on competition or market quality 
of including quotes in the calculation of message traffic, however, the 
Operating Committee determined to discount the Options Market Maker 
quotes by the trade to quote ratio for options when calculating message 
traffic for Options Market Makers. Based on available data for June 
2016 through June 2017, the trade to quote ratio for options is 0.01%. 
Similarly, to avoid disincentives to quoting behavior on the equities 
side, the Operating Committee determined to discount equity market 
maker quotes by the trade to quote ratio for equities. Based on 
available data for June 2016 through June 2017, the trade to quote 
ratio for equities is 5.43%.\52\ The trade to quote ratio for options 
and the trade to quote ratio for equities will be calculated every 
three months when tiers are recalculated (as discussed below).
---------------------------------------------------------------------------

    \51\ The SEC approved exemptive relief permitting Options Market 
Maker quotes to be reported to the Central Repository by the 
relevant Options Exchange in lieu of requiring that such reporting 
be done by both the Options Exchange and the Options Market Maker, 
as required by Rule 613 of Regulation NMS. See Securities Exchange 
Act Rel. No. 77265 (Mar. 1, 2017, 81 FR 11856 (Mar. 7, 2016). This 
exemption applies to Options Market Maker quotes for CAT reporting 
purposes only. Therefore, notwithstanding the reporting exemption 
provided for Options Market Maker quotes, Options Market Maker 
quotes will be included in the calculation of total message traffic 
for Options Market Makers for purposes of tiering under the CAT 
funding model both prior to CAT reporting and once CAT reporting 
commences.
    \52\ The trade to quote ratios were calculated based on the 
inverse of the average of the monthly equity SIP and OPRA quote to 
trade ratios from June 2016-June 2017 that were compiled by the 
Financial Information Forum using data from NASDAQ and SIAC.
---------------------------------------------------------------------------

    The Operating Committee has determined to calculate fee tiers every 
three months, on a calendar quarter basis, based on message traffic 
from the prior three months. Based on its analysis of historical data, 
the Operating Committee believes that calculating tiers based on three 
months of data will provide the best balance between reflecting changes 
in activity by Industry Members while still providing predictability in 
the tiering for Industry Members. Because fee tiers will be calculated 
based on message traffic from the prior three months, the Operating 
Committee will begin calculating message traffic based on an Industry 
Member's Reportable Events reported to the CAT once the Industry Member 
has been reporting to the CAT for three months. Prior to that, fee 
tiers will be calculated as discussed above with regard to the period 
prior to CAT reporting.
(C) Execution Venue Tiering
    Under Section 11.3(a) of the CAT NMS Plan, the Operating Committee 
is required to establish fixed fees payable by Execution Venues. 
Section 1.1 of the CAT NMS Plan defines an Execution Venue as ``a 
Participant or an alternative trading system (``ATS'') (as defined in 
Rule 300 of Regulation ATS) that operates pursuant to Rule 301 of 
Regulation ATS (excluding any such ATS that does not execute orders).'' 
\53\
---------------------------------------------------------------------------

    \53\ Although FINRA does not operate an execution venue, because 
it is a Participant, it is considered an ``Execution Venue'' under 
the Plan for purposes of determining fees.
---------------------------------------------------------------------------

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

[[Page 59103]]

these purposes, market share for Execution Venues that execute 
transactions will be calculated by share volume, and market share for a 
national securities association that has trades reported by its members 
to its trade reporting facility or facilities for reporting 
transactions effected otherwise than on an exchange in NMS Stocks or 
OTC Equity Securities will be calculated based on share volume of 
trades reported, provided, however, that the share volume reported to 
such national securities association by an Execution Venue shall not be 
included in the calculation of such national security association's 
market share.
    In accordance with Section 11.3(a)(i) of the CAT NMS Plan, the 
Operating Committee approved a tiered fee structure for Equity 
Execution Venues and Option Execution Venues. In determining the Equity 
Execution Venue Tiers, the Operating Committee considered the funding 
principles set forth in Section 11.2 of the CAT NMS Plan, seeking to 
create funding tiers that take into account the relative impact on 
system resources of different Equity Execution Venues, and that 
establish comparable fees among the CAT Reporters with the most 
Reportable Events. Each Equity Execution Venue will be placed into one 
of four tiers of fixed fees, based on the Execution Venue's NMS Stocks 
and OTC Equity Securities market share. In choosing four tiers, the 
Operating Committee performed an analysis similar to that discussed 
above with regard to the non-Execution Venue Industry Members to 
determine the number of tiers for Equity Execution Venues. The 
Operating Committee determined to establish four tiers for Equity 
Execution Venues, rather than a larger number of tiers as established 
for non-Execution Venue Industry Members, because the four tiers were 
sufficient to distinguish between the smaller number of Equity 
Execution Venues based on market share. Furthermore, the selection of 
four tiers serves to help establish comparability among the largest CAT 
Reporters.
    Each Equity Execution Venue will be ranked by market share and 
tiered by predefined Execution Venue percentages, (the ``Equity 
Execution Venue Percentages''). In determining the fixed percentage of 
Equity Execution Venues in each tier, the Operating Committee reviewed 
historical market share of share volume for Execution Venues. Equity 
Execution Venue market shares of share volume were sourced from market 
statistics made publicly-available by Bats Global Markets, Inc. 
(``Bats''). ATS market shares of share volume was sourced from market 
statistics made publicly-available by FINRA. FINRA trade reporting 
facility (``TRF'') and ORF market share of share volume was sourced 
from market statistics made publicly available by FINRA. Based on data 
from FINRA and the otcmarkets.com, ATSs accounted for 39.12% of the 
share volume across the TRFs and ORFs during the recent tiering period. 
A 39.12/60.88 split was applied to the ATS and non-ATS breakdown of 
FINRA market share, with FINRA tiered based only on the non-ATS portion 
of its market share of share volume.
    The Operating Committee determined to discount the market share of 
Execution Venue ATSs exclusively trading OTC Equity Securities as well 
as the market share of the FINRA ORF in recognition of the different 
trading characteristics of the OTC Equity Securities market as compared 
to the market in NMS Stocks. Many OTC Equity Securities are priced at 
less than one dollar--and a significant number at less than one penny--
per share and low-priced shares tend to trade in larger quantities. 
Accordingly, a disproportionately large number of shares are involved 
in transactions involving OTC Equity Securities versus NMS Stocks. 
Because the proposed fee tiers are based on market share calculated by 
share volume, Execution Venue ATSs exclusively trading OTC Equity 
Securities and FINRA would likely be subject to higher tiers than their 
operations may warrant. To address this potential concern, the 
Operating Committee determined to discount the market share of 
Execution Venue ATSs exclusively trading OTC Equity Securities and the 
market share of the FINRA ORF by multiplying such market share by the 
average shares per trade ratio between NMS Stocks and OTC Equity 
Securities in order to adjust for the greater number of shares being 
traded in the OTC Equity Securities market. Based on available data for 
the second quarter of 2017, the average shares per trade ratio between 
NMS Stocks and OTC Equity Securities is 0.17%.\54\ The average shares 
per trade ratio between NMS Stocks and OTC Equity Securities will be 
recalculated every three months when tiers are recalculated.
---------------------------------------------------------------------------

    \54\ The average shares per trade ratio for both NMS Stocks and 
OTC Equity Securities from the second quarter of 2017 was calculated 
using publicly available market volume data from Bats and OTC 
Markets Group, and the totals were divided to determine the average 
number of shares per trade between NMS Stocks and OTC Equity 
Securities.
---------------------------------------------------------------------------

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

----------------------------------------------------------------------------------------------------------------
                                                                  Percentage  of  Percentage  of
                                                                      Equity         Execution    Percentage  of
                   Equity Execution Venue tier                       Execution         Venue           total
                                                                      Venues         recovery        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           25.00           33.25            8.31

[[Page 59104]]

 
Tier 2..........................................................           42.00           25.73            6.43
Tier 3..........................................................           23.00            8.00            2.00
Tier 4..........................................................           10.00            0.02            0.01
    Total.......................................................             100              67           16.75
----------------------------------------------------------------------------------------------------------------

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

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

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

[[Page 59105]]

contracts reported by all Options Execution Venues during the relevant 
time period.
    The Operating Committee has determined to calculate fee tiers for 
Execution Venues every three months based on market share from the 
prior three months. Based on its analysis of historical data, the 
Operating Committee believes calculating tiers based on three months of 
data will provide the best balance between reflecting changes in 
activity by Execution Venues while still providing predictability in 
the tiering for Execution Venues.
(D) Allocation of Costs
    In addition to the funding principles discussed above, including 
comparability of fees, Section 11.1(c) of the CAT NMS Plan also 
requires expenses to be fairly and reasonably shared among the 
Participants and Industry Members. Accordingly, in developing the 
proposed fee schedules pursuant to the funding model, the Operating 
Committee calculated how the CAT costs would be allocated between 
Industry Members and Execution Venues, and how the portion of CAT costs 
allocated to Execution Venues would be allocated between Equity 
Execution Venues and Options Execution Venues. These determinations are 
described below.
(I) Allocation Between Industry Members and Execution Venues
    In determining the cost allocation between Industry Members (other 
than Execution Venue ATSs) and Execution Venues, the Operating 
Committee analyzed a range of possible splits for revenue recovery from 
such Industry Members and Execution Venues, including 80%/20%, 75%/25%, 
70%/30% and 65%/35% allocations. Based on this analysis, the Operating 
Committee determined that 75 percent of total costs recovered would be 
allocated to Industry Members (other than Execution Venue ATSs) and 25 
percent would be allocated to Execution Venues. The Operating Committee 
determined that this 75%/25% division maintained the greatest level of 
comparability across the funding model. For example, the cost 
allocation establishes fees for the largest Industry Members (i.e., 
those Industry Members in Tier 1) that are comparable to the largest 
Equity Execution Venues and Options Execution Venues (i.e., those 
Execution Venues in Tier 1).
    Furthermore, the allocation of total CAT cost recovery recognizes 
the difference in the number of CAT Reporters that are Industry Members 
versus CAT Reporters that are Execution Venues. Specifically, the cost 
allocation takes into consideration that there are approximately 23 
times more Industry Members expected to report to the CAT than 
Execution Venues (e.g., an estimated 1,541 Industry Members versus 67 
Execution Venues as of June 2017).
(II) Allocation Between Equity Execution Venues and Options Execution 
Venues
    The Operating Committee also analyzed how the portion of CAT costs 
allocated to Execution Venues would be allocated between Equity 
Execution Venues and Options Execution Venues. In considering this 
allocation of costs, the Operating Committee analyzed a range of 
alternative splits for revenue recovered between Equity and Options 
Execution Venues, including a 70%/30%, 67%/33%, 65%/35%, 50%/50% and 
25%/75% split. Based on this analysis, the Operating Committee 
determined to allocate 67 percent of Execution Venue costs recovered to 
Equity Execution Venues and 33 percent to Options Execution Venues. The 
Operating Committee determined that a 67%/33% allocation between Equity 
and Options Execution Venues maintained the greatest level of fee 
equitability and comparability based on the current number of Equity 
and Options Execution Venues. For example, the allocation establishes 
fees for the larger Equity Execution Venues that are comparable to the 
larger Options Execution Venues. Specifically, Tier 1 Equity Execution 
Venues would pay a quarterly fee of $81,047 and Tier 1 Options 
Execution Venues would pay a quarterly fee of $81,379. In addition to 
fee comparability between Equity Execution Venues and Options Execution 
Venues, the allocation also establishes equitability between larger 
(Tier 1) and smaller (Tier 2) Execution Venues based upon the level of 
market share. Furthermore, the allocation is intended to reflect the 
relative levels of current equity and options order events.
(E) Fee Levels
    The Operating Committee determined to establish a CAT-specific fee 
to collectively recover the costs of building and operating the CAT. 
Accordingly, under the funding model, the sum of the CAT Fees is 
designed to recover the total cost of the CAT. The Operating Committee 
has determined overall CAT costs to be comprised of Plan Processor 
costs and non-Plan Processor costs, which are estimated to be 
$50,700,000 in total for the year beginning November 21, 2016.\55\
---------------------------------------------------------------------------

    \55\ It is anticipated that CAT-related costs incurred prior to 
November 21, 2016 will be addressed via a separate filing.
---------------------------------------------------------------------------

    The Plan Processor costs relate to costs incurred and to be 
incurred through November 21, 2017 by the Plan Processor and consist of 
the Plan Processor's current estimates of average yearly ongoing costs, 
including development costs, which total $37,500,000. This amount is 
based upon the fees due to the Plan Processor pursuant to the Company's 
agreement with the Plan Processor.
    The non-Plan Processor estimated costs incurred and to be incurred 
by the Company through November 21, 2017 consist of three categories of 
costs. The first category of such costs are third party support costs, 
which include legal fees, consulting fees and audit fees from November 
21, 2016 until the date of filing as well as estimated third party 
support costs for the rest of the year. These amount to an estimated 
$5,200,000. The second category of non-Plan Processor costs are 
estimated cyber-insurance costs for the year. Based on discussions with 
potential cyber-insurance providers, assuming $2-5 million cyber-
insurance premium on $100 million coverage, the Company has estimated 
$3,000,000 for the annual cost. The final cost figures will be 
determined following receipt of final underwriter quotes. The third 
category of non-Plan Processor costs is the CAT operational reserve, 
which is comprised of three months of ongoing Plan Processor costs 
($9,375,000), third party support costs ($1,300,000) and cyber-
insurance costs ($750,000). The Operating Committee aims to accumulate 
the necessary funds to establish the three-month operating reserve for 
the Company through the CAT Fees charged to CAT Reporters for the year. 
On an ongoing basis, the Operating Committee will account for any 
potential need to replenish the operating reserve or other changes to 
total cost during its annual budgeting process. The following table 
summarizes the Plan Processor and non-Plan Processor cost components 
which comprise the total estimated CAT costs of $50,700,000 for the 
covered period.

[[Page 59106]]



------------------------------------------------------------------------
         Cost category                Cost component          Amount
------------------------------------------------------------------------
Plan Processor.................  Operational Costs......     $37,500,000
Non-Plan Processor.............  Third Party Support           5,200,000
                                  Costs.
                                 Operational Reserve....  \56\ 5,000,000
                                 Cyber-insurance Costs..       3,000,000
                                                         ---------------
    Estimated Total............  .......................      50,700,000
------------------------------------------------------------------------

    Based on these estimated costs and the calculations for the funding 
model described above, the Operating Committee determined to impose the 
following fees:\57\
---------------------------------------------------------------------------

    \56\ This $5,000,000 represents the gradual accumulation of the 
funds for a target operating reserve of $11,425,000.
    \57\ Note that all monthly, quarterly and annual CAT Fees have 
been rounded to the nearest dollar.
---------------------------------------------------------------------------

    For Industry Members (other than Execution Venue ATSs):

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

    For Execution Venues for NMS Stocks and OTC Equity Securities:

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

    For Execution Venues for Listed Options:

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

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

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


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


[[Page 59107]]

[GRAPHIC] [TIFF OMITTED] TN14DE17.009


[[Page 59108]]

[GRAPHIC] [TIFF OMITTED] TN14DE17.010


                      Calculation of Annual Tier Fees for Equity Execution Venues (``EV'')
----------------------------------------------------------------------------------------------------------------
                                                                  Percentage  of  Percentage  of
                                                                      Equity         Execution    Percentage  of
                   Equity Execution Venue tier                       Execution         Venue           total
                                                                      Venues         Recovery        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           25.00           33.25            8.31
Tier 2..........................................................           42.00           25.73            6.43
Tier 3..........................................................           23.00            8.00            2.00
Tier 4..........................................................           10.00           49.00            0.01
                                                                 -----------------------------------------------
    Total.......................................................             100              67           16.75
----------------------------------------------------------------------------------------------------------------


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


[[Page 59109]]

[GRAPHIC] [TIFF OMITTED] TN14DE17.011


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


------------------------------------------------------------------------
                                                             Estimated
                                                             Number of
              Options Execution Venue tier                    Options
                                                             Execution
                                                              Venues
------------------------------------------------------------------------
Tier 1..................................................              11
Tier 2..................................................               4
                                                         ---------------

[[Page 59110]]

 
    Total...............................................              15
------------------------------------------------------------------------

                                                          [GRAPHIC] [TIFF OMITTED] TN14DE17.035
                                                          

                                         Traceability of Total CAT Fees
----------------------------------------------------------------------------------------------------------------
                                                                     Estimated
                Type                     Industry  Member tier       number of    CAT  fees paid       Total
                                                                      members         annually       recovery
----------------------------------------------------------------------------------------------------------------
Industry Members....................  Tier 1....................              14         325,932       4,563,048
                                      Tier 2....................              33         236,220       7,795,260
                                      Tier 3....................              43         163,596       7,034,628
                                      Tier 4....................             119         102,264      12,169,416
                                      Tier 5....................             128          29,712       3,803,136
                                      Tier 6....................             290           7,872       2,282,880
                                      Tier 7....................             914             420         383,880
                                                                 -----------------------------------------------
    Total...........................  ..........................           1,541  ..............      38,032,248
----------------------------------------------------------------------------------------------------------------
Equity Execution Venues.............  Tier 1....................              13         324,192       4,214,496
                                      Tier 2....................              22         148,248       3,261,456
                                      Tier 3....................              12          84,504       1,014,048
                                      Tier 4....................               5             516           2,580
                                                                 -----------------------------------------------
    Total...........................  ..........................              52  ..............       8,492,580
----------------------------------------------------------------------------------------------------------------
Options Execution Venues............  Tier 1....................              11         325,524       3,580,764
                                      Tier 2....................               4         150,516         602,064
                                                                 -----------------------------------------------
    Total...........................  ..........................              15  ..............       4,182,828
----------------------------------------------------------------------------------------------------------------
        Total.......................  ..........................  ..............  ..............      50,700,000
                                                                 -----------------------------------------------
        \58\ Excess.................  ..........................  ..............  ..............           7,656
----------------------------------------------------------------------------------------------------------------

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

    \58\ The amount in excess of the total CAT costs will contribute 
to the gradual accumulation of the target operating reserve of 
$11.425 million.
---------------------------------------------------------------------------

(F) Comparability of Fees
    The funding principles require a funding model in which the fees 
charged to the CAT Reporters with the most CAT-related activity 
(measured by market share and/or message traffic, as applicable) are 
generally comparable (where, for these comparability purposes, the 
tiered fee structure takes into consideration affiliations between or 
among CAT Reporters, whether Execution Venue and/or Industry

[[Page 59111]]

Members). Accordingly, in creating the model, the Operating Committee 
sought to establish comparable fees for the top tier of Industry 
Members (other than Execution Venue ATSs), Equity Execution Venues and 
Options Execution Venues. Specifically, each Tier 1 CAT Reporter would 
be required to pay a quarterly fee of approximately $81,000.
(G) Billing Onset
    Under Section 11.1(c) of the CAT NMS Plan, to fund the development 
and implementation of the CAT, the Company shall time the imposition 
and collection of all fees on Participants and Industry Members in a 
manner reasonably related to the timing when the Company expects to 
incur such development and implementation costs. The Company is 
currently incurring such development and implementation costs and will 
continue to do so prior to the commencement of CAT reporting and 
thereafter. In accordance with the CAT NMS Plan, all CAT Reporters, 
including both Industry Members and Execution Venues (including 
Participants), will be invoiced as promptly as possible following the 
latest of the operative date of the Consolidated Audit Trail Funding 
Fees for each of the Participants and the operative date of the Plan 
amendment adopting CAT Fees for Participants.
(H) Changes to Fee Levels and Tiers
    Section 11.3(d) of the CAT NMS Plan states that ``[t]he Operating 
Committee shall review such fee schedule on at least an annual basis 
and shall make any changes to such fee schedule that it deems 
appropriate. The Operating Committee is authorized to review such fee 
schedule on a more regular basis, but shall not make any changes on 
more than a semi-annual basis unless, pursuant to a Supermajority Vote, 
the Operating Committee concludes that such change is necessary for the 
adequate funding of the Company.'' With such reviews, the Operating 
Committee will review the distribution of Industry Members and 
Execution Venues across tiers, and make any updates to the percentage 
of CAT Reporters allocated to each tier as may be necessary. In 
addition, the reviews will evaluate the estimated ongoing CAT costs and 
the level of the operating reserve. To the extent that the total CAT 
costs decrease, the fees would be adjusted downward, and to the extent 
that the total CAT costs increase, the fees would be adjusted 
upward.\59\ Furthermore, any surplus of the Company's revenues over its 
expenses is to be included within the operational reserve to offset 
future fees. The limitations on more frequent changes to the fee, 
however, are intended to provide budgeting certainty for the CAT 
Reporters and the Company.\60\ To the extent that the Operating 
Committee approves changes to the number of tiers in the funding model 
or the fees assigned to each tier, then the Operating Committee will 
file such changes with the SEC pursuant to Rule 608 of the Exchange 
Act, and the Participants will file such changes with the SEC pursuant 
to Section 19(b) of the Exchange Act and Rule 19b-4 thereunder, and any 
such changes will become effective in accordance with the requirements 
of those provisions.
---------------------------------------------------------------------------

    \59\ The CAT Fees are designed to recover the costs associated 
with the CAT. Accordingly, CAT Fees would not be affected by 
increases or decreases in other non-CAT expenses incurred by the 
Participants, such as any changes in costs related to the retirement 
of existing regulatory systems, such as OATS.
    \60\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
---------------------------------------------------------------------------

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

 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Period A                                                                     Period B
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Market share                                                             Market share
            Options Execution Venue                   rank             Tier               Options Execution Venue              rank            Tier
--------------------------------------------------------------------------------------------------------------------------------------------------------
Options Execution Venue A......................               1               1   Options Execution Venue A.............               1               1
Options Execution Venue B......................               2               1   Options Execution Venue B.............               2               1
Options Execution Venue C......................               3               1   Options Execution Venue C.............               3               1
Options Execution Venue D......................               4               1   Options Execution Venue D.............               4               1
Options Execution Venue E......................               5               1   Options Execution Venue E.............               5               1
Options Execution Venue F......................               6               1   Options Execution Venue F.............               6               1
Options Execution Venue G......................               7               1   Options Execution Venue I.............               7               1

[[Page 59112]]

 
Options Execution Venue H......................               8               1   Options Execution Venue H.............               8               1
Options Execution Venue I......................               9               1   Options Execution Venue G.............               9               1
Options Execution Venue J......................              10               1   Options Execution Venue J.............              10               1
Options Execution Venue K......................              11               1   Options Execution Venue L.............              11               1
Options Execution Venue L......................              12               2   Options Execution Venue K.............              12               2
Options Execution Venue M......................              13               2   Options Execution Venue N.............              13               2
Options Execution Venue N......................              14               2   Options Execution Venue M.............              14               2
Options Execution Venue O......................              15               2   Options Execution Venue O.............              15               2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For each periodic tier reassignment, the Operating Committee will 
review the new tier assignments, particularly those assignments for CAT 
Reporters that shift from the lowest tier to a higher tier. This review 
is intended to evaluate whether potential changes to the market or CAT 
Reporters (e.g., dissolution of a large CAT Reporter) adversely affect 
the tier reassignments.
(J) Sunset Provision
    The Operating Committee developed the proposed funding model by 
analyzing currently available historical data. Such historical data, 
however, is not as comprehensive as data that will be submitted to the 
CAT. Accordingly, the Operating Committee believes that it will be 
appropriate to revisit the funding model once CAT Reporters have actual 
experience with the funding model. Accordingly, the Operating Committee 
determined to include an automatic sunsetting provision for the 
proposed fees. Specifically, the Operating Committee determined that 
the CAT Fees should automatically expire two years after the operative 
date of the CAT NMS Plan amendment adopting CAT Fees for Participants. 
The Operating Committee intends to monitor the operation of the funding 
model during this two year period and to evaluate its effectiveness 
during that period. Such a process will inform the Operating 
Committee's approach to funding the CAT after the two year period.
(3) Proposed CAT Fee Schedule
    The Exchange proposes the Consolidated Audit Trail Funding Fees to 
impose the CAT Fees determined by the Operating Committee on the 
Exchange's members. The proposed fee schedule has four sections, 
covering definitions, the fee schedule for CAT Fees, the timing and 
manner of payments, and the automatic sunsetting of the CAT Fees. Each 
of these sections is discussed in detail below.
(A) Definitions
    Paragraph (a) of the proposed fee schedule sets forth the 
definitions for the proposed fee schedule. Paragraph (a)(1) states 
that, for purposes of the Consolidated Audit Trail Funding Fees, the 
terms ``CAT'', ``CAT NMS Plan,'' ``Industry Member,'' ``NMS Stock,'' 
``OTC Equity Security'', ``Options Market Maker'', and ``Participant'' 
are defined as set forth in Rule 1701 (Consolidated Audit Trail 
Compliance Rule--Definitions).\61\
---------------------------------------------------------------------------

    \61\ The rules contained in Miami International Securities 
Exchange, LLC Rule Book Chapter XVII, as such rules may be in effect 
from time to time (the ``Chapter XVII Rules''), have been 
incorporated by reference into MIAX PEARL Chapter XVII, and are thus 
MIAX PEARL Rules and thereby applicable to MIAX PEARL members. MIAX 
PEARL members shall comply with the Chapter XVII Rules as though 
such rules were fully-set forth in the MIAX PEARL Rule Book. All 
defined terms, including any variations thereof, contained in 
Chapter XVII Rules shall be read to refer to the MIAX PEARL related 
meaning of such term. See Securities Exchange Act Release No. 80256 
(March 15, 2017), 82 FR 14,526 (March 21, 2017) (SR-PEARL-2017-004) 
and Securities Exchange Act Release No. 80338 (March 29, 2017), 82 
FR 16,464 (April 4, 2017).
---------------------------------------------------------------------------

    The proposed fee schedule imposes different fees on Equity ATSs and 
Industry Members that are not Equity ATSs. Accordingly, the proposed 
fee schedule defines the term ``Equity ATS.'' First, paragraph (a)(2) 
defines an ``ATS'' to mean an alternative trading system as defined in 
Rule 300(a) of Regulation ATS under the Securities Exchange Act of 
1934, as amended, that operates pursuant to Rule 301 of Regulation ATS. 
This is the same definition of an ATS as set forth in Section 1.1 of 
the CAT NMS Plan in the definition of an ``Execution Venue.'' Then, 
paragraph (a)(4) defines an ``Equity ATS'' as an ATS that executes 
transactions in NMS Stocks and/or OTC Equity Securities.
    Paragraph (a)(3) of the proposed fee schedule defines the term 
``CAT Fee'' to mean the Consolidated Audit Trail Funding Fee(s) to be 
paid by Industry Members as set forth in paragraph (b) in the proposed 
fee schedule.
    Finally, Paragraph (a)(6) defines an ``Execution Venue'' as a 
Participant or an ATS (excluding any such ATS that does not execute 
orders). This definition is the same substantive definition as set 
forth in Section 1.1 of the CAT NMS Plan. Paragraph (a)(5) defines an 
``Equity Execution Venue'' as an Execution Venue that trades NMS Stocks 
and/or OTC Equity Securities.
(B) Fee Schedule
    The Exchange proposes to impose the CAT Fees applicable to its 
Industry Members through paragraph (b) of the proposed fee schedule. 
Paragraph (b)(1) of the proposed fee schedule sets forth the CAT Fees 
applicable to Industry Members other than Equity ATSs. Specifically, 
paragraph (b)(1) states that the Company will assign each Industry 
Member (other than an Equity ATS) to a fee tier once every quarter, 
where such tier assignment is calculated by ranking each Industry 
Member based on its total message traffic (with discounts for equity 
market maker quotes and Options Market Maker quotes based on the trade 
to quote ratio for equities and options, respectively) for the three 
months prior to the quarterly tier calculation day and assigning each 
Industry Member to a tier based on that ranking and predefined Industry 
Member percentages. The Industry Members with the highest total 
quarterly message traffic will be ranked in Tier 1, and the Industry 
Members with lowest quarterly message traffic will be ranked in Tier 7. 
Each quarter, each Industry Member (other than an Equity ATS) shall pay 
the following CAT Fee corresponding to the tier assigned by the Company 
for such Industry Member for that quarter:

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

[[Page 59113]]

 
6.......................................          18.800           1,968
7.......................................          59.300             105
------------------------------------------------------------------------

    Paragraph (b)(2) of the proposed fee schedule sets forth the CAT 
Fees applicable to Equity ATSs.\62\ These are the same fees that 
Participants that trade NMS Stocks and/or OTC Equity Securities will 
pay. Specifically, paragraph (b)(2) states that the Company will assign 
each Equity ATS to a fee tier once every quarter, where such tier 
assignment is calculated by ranking each Equity Execution Venue based 
on its total market share of NMS Stocks and OTC Equity Securities (with 
a discount for Equity ATSs exclusively trading OTC Equity Securities 
based on the average shares per trade ratio between NMS Stocks and OTC 
Equity Securities) for the three months prior to the quarterly tier 
calculation day and assigning each Equity ATS to a tier based on that 
ranking and predefined Equity Execution Venue percentages. The Equity 
ATSs with the higher total quarterly market share will be ranked in 
Tier 1, and the Equity ATSs with the lowest quarterly market share will 
be ranked in Tier 4. Specifically, paragraph (b)(2) states that, each 
quarter, each Equity ATS shall pay the following CAT Fee corresponding 
to the tier assigned by the Company for such Equity ATS for that 
quarter:
---------------------------------------------------------------------------

    \62\ Note that no fee schedule is provided for Execution Venue 
ATSs that execute transactions in Listed Options, as no such 
Execution Venue ATSs currently exist due to trading restrictions 
related to Listed Options.

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

(C) Timing and Manner of Payment
    Section 11.4 of the CAT NMS Plan states that the Operating 
Committee shall establish a system for the collection of fees 
authorized under the CAT NMS Plan. The Operating Committee may include 
such collection responsibility as a function of the Plan Processor or 
another administrator. To implement the payment process to be adopted 
by the Operating Committee, paragraph (c)(1) of the proposed fee 
schedule states that the Company will provide each Industry Member with 
one invoice each quarter for its CAT Fees as determined pursuant to 
paragraph (b) of the proposed fee schedule, regardless of whether the 
Industry Member is a member of multiple self-regulatory organizations. 
Paragraph (c)(1) further states that each Industry Member will pay its 
CAT Fees to the Company via the centralized system for the collection 
of CAT Fees established by the Company in the manner prescribed by the 
Company. The Exchange will provide Industry Members with details 
regarding the manner of payment of CAT Fees by Regulatory Circular.
    All CAT fees will be billed and collected centrally through the 
Company via the Plan Processor. Although each Participant will adopt 
its own fee schedule regarding CAT Fees, no CAT Fees or portion thereof 
will be collected by the individual Participants. Each Industry Member 
will receive from the Company one invoice for its applicable CAT fees, 
not separate invoices from each Participant of which it is a member. 
The Industry Members will pay the CAT Fees to the Company via the 
centralized system for the collection of CAT fees established by the 
Company.\63\
---------------------------------------------------------------------------

    \63\ Section 11.4 of the CAT NMS Plan.
---------------------------------------------------------------------------

    Section 11.4 of the CAT NMS Plan also states that Participants 
shall require each Industry Member to pay all applicable authorized CAT 
Fees within thirty days after receipt of an invoice or other notice 
indicating payment is due (unless a longer payment period is otherwise 
indicated). Section 11.4 further states that, if an Industry Member 
fails to pay any such fee when due, such Industry Member shall pay 
interest on the outstanding balance from such due date until such fee 
is paid at a per annum rate equal to the lesser of: (i) The Prime Rate 
plus 300 basis points; or (ii) the maximum rate permitted by applicable 
law. Therefore, in accordance with Section 11.4 of the CAT NMS Plan, 
the Exchange proposes to adopt paragraph (c)(2) of the proposed fee 
schedule. Paragraph (c)(2) of the proposed fee schedule states that 
each Industry Member shall pay CAT Fees within thirty days after 
receipt of an invoice or other notice indicating payment is due (unless 
a longer payment period is otherwise indicated). If an Industry Member 
fails to pay any such fee when due, such Industry Member shall pay 
interest on the outstanding balance from such due date until such fee 
is paid at a per annum rate equal to the lesser of: (i) The Prime Rate 
plus 300 basis points; or (ii) the maximum rate permitted by applicable 
law.
(D) Sunset Provision
    The Operating Committee has determined to require that the CAT Fees 
automatically sunset two years from the operative date of the CAT NMS 
Plan amendment adopting CAT Fees for Participants. Accordingly, the 
Exchange proposes paragraph (d) of the fee schedule, which states that 
``[t]hese Consolidated Audit Trailing Funding Fees will automatically 
expire two years after the operative date of the amendment of the CAT 
NMS Plan that adopts CAT fees for the Participants.''
(4) Changes to Prior CAT Fee Plan Amendment
    The proposed funding model set forth in this Amendment is a revised 
version of the Original Proposal. The Commission received a number of 
comment letters in response to the Original Proposal.\64\ The SEC 
suspended the Original Proposal and instituted proceedings to determine 
whether to approve or disapprove it.\65\ Pursuant to those proceedings, 
additional comment letters were submitted regarding the proposed 
funding model.\66\ In developing this Amendment, the Operating 
Committee carefully considered these comments and made a number of 
changes to the Original Proposal to address these comments where 
appropriate.
---------------------------------------------------------------------------

    \64\ For a description of the comments submitted in response to 
the Original Proposal, see Suspension Order.
    \65\ Suspension Order.
    \66\ See MFA Letter; SIFMA Letter; FIA Principal Traders Group 
Letter; Belvedere Letter; Sidley Letter; Group One Letter; and Virtu 
Financial Letter.
---------------------------------------------------------------------------

    This Amendment makes the following changes to the Original 
Proposal: (1) Adds two additional CAT Fee tiers for Equity Execution 
Venues; (2) discounts the market share of Execution Venue ATSs 
exclusively trading OTC Equity Securities as well as the market share 
of the FINRA ORF by the average shares per trade ratio between NMS 
Stocks and OTC Equity Securities (calculated as 0.17% based on 
available data from the second quarter of 2017) when calculating the 
market share of Execution Venue ATSs exclusively trading OTC Equity 
Securities and FINRA; (3) discounts the Options Market Maker quotes by 
the trade to quote ratio for options (calculated as 0.01% based on 
available data for June 2016 through June 2017) when calculating 
message traffic for Options Market Makers; (4) discounts equity market 
maker quotes by the trade to quote ratio for equities (calculated as

[[Page 59114]]

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

    \67\ See Suspension Order at 31664; SIFMA Letter at 3.
---------------------------------------------------------------------------

    Specifically, the Original Proposal had two tiers of Equity 
Execution Venues. Tier 1 required the largest Equity Execution Venues 
to pay a quarterly fee of $63,375. Based on available data, these 
largest Equity Execution Venues were those that had equity market share 
of share volume greater than or equal to 1%.\68\ Tier 2 required the 
remaining smaller Equity Execution Venues to pay a quarterly fee of 
$38,820.
---------------------------------------------------------------------------

    \68\ Note that while these equity market share thresholds were 
referenced as data points to help differentiate between Equity 
Execution Venue tiers, the proposed funding model is directly driven 
not by market share thresholds, but rather by fixed percentages of 
Equity Execution Venues across tiers to account for fluctuating 
levels of market share across time. Actual market share in any tier 
will vary based on the actual market activity in a given measurement 
period, as well as the number of Equity Execution Venues included in 
the measurement period.
---------------------------------------------------------------------------

    To address concerns about the potential for the $38,820 quarterly 
fee to impose an undue burden on smaller Equity Execution Venues, the 
Operating Committee determined to move to a four tier structure for 
Equity Execution Venues. Tier 1 would continue to include the largest 
Equity Execution Venues by share volume (that is, based on currently 
available data, those with market share of equity share volume greater 
than or equal to one percent), and these Equity Execution Venues would 
be required to pay a quarterly fee of $81,048. The Operating Committee 
determined to divide the original Tier 2 into three tiers. The new Tier 
2 Equity Execution Venues, which would include the next largest Equity 
Execution Venues by equity share volume, would be required to pay a 
quarterly fee of $37,062. The new Tier 3 Equity Execution Venues would 
be required to pay a quarterly fee of $21,126. The new Tier 4 Equity 
Execution Venues, which would include the smallest Equity Execution 
Venues by share volume, would be required to pay a quarterly fee of 
$129.
    In developing the proposed four tier structure, the Operating 
Committee considered keeping the existing two tiers, as well as 
shifting to three, four or five Equity Execution Venue tiers (the 
maximum number of tiers permitted under the Plan), to address the 
concerns regarding small Equity Execution Venues. For each of the two, 
three, four and five tier alternatives, the Operating Committee 
considered the assignment of various percentages of Equity Execution 
Venues to each tier as well as various percentages of Equity Execution 
Venue recovery allocations for each alternative. As discussed below in 
more detail, each of these options was considered in the context of the 
full model, as changes in each variable in the model affect other 
variables in the model when allocating the total CAT costs among CAT 
Reporters. The Operating Committee determined that the four tier 
alternative addressed the spectrum of different Equity Execution 
Venues. The Operating Committee determined that neither a two tier 
structure nor a three tier structure sufficiently accounted for the 
range of market shares of smaller Equity Execution Venues. The 
Operating Committee also determined that, given the limited number of 
Equity Execution Venues, that a fifth tier was unnecessary to address 
the range of market shares of the Equity Execution Venues.
    By increasing the number of tiers for Equity Execution Venues and 
reducing the proposed CAT Fees for the smaller Equity Execution Venues, 
the Operating Committee believes that the proposed fees for Equity 
Execution Venues would not impose an undue or inappropriate burden on 
competition under Section 6 or Section 15A of the Exchange Act. 
Moreover, the Operating Committee believes that the proposed fees 
appropriately take into account the distinctions in the securities 
trading operations of different Equity Execution Venues, as required 
under the funding principles of the CAT NMS Plan.\69\ The larger number 
of tiers more closely tracks the variety of sizes of equity share 
volume of Equity Execution Venues. In addition, the reduction in the 
fees for the smaller Equity Execution Venues recognizes the potential 
burden of larger fees on smaller entities. In particular, the very 
small quarterly fee of $129 for Tier 4 Equity Execution Venues reflects 
the fact that certain Equity Execution Venues have a very small share 
volume due to their typically more focused business models.
---------------------------------------------------------------------------

    \69\ Section 11.2(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Accordingly, with this Amendment, the Exchange proposes to amend 
paragraph (b)(2) of the proposed fee schedule to add the two additional 
tiers for Equity Execution Venues, to establish the percentages and 
fees for Tiers 3 and 4 as described, and to revise the percentages and 
fees for Tiers 1 and 2 as described.
(ii) Execution Venues for OTC Equity Securities
    In the Original Proposal, the Operating Committee proposed to group 
Execution Venues for OTC Equity Securities and Execution Venues for NMS 
Stocks in the same tier structure. The Commission and commenters raised 
concerns as to whether this determination to place Execution Venues for 
OTC Equity Securities in the same tier structure as Execution Venues 
for NMS Stocks would result in an undue or inappropriate burden on 
competition, recognizing that the application of share volume may lead 
to different outcomes as applied to OTC Equity Securities and NMS 
Stocks.\70\ To address this concern, the Operating Committee proposes 
to discount the

[[Page 59115]]

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

    \70\ See Suspension Order at 31664-5.
---------------------------------------------------------------------------

    As commenters noted, many OTC Equity Securities are priced at less 
than one dollar--and a significant number at less than one penny--and 
low-priced shares tend to trade in larger quantities. Accordingly, a 
disproportionately large number of shares are involved in transactions 
involving OTC Equity Securities versus NMS Stocks, which has the effect 
of overstating an Execution Venue's true market share when the 
Execution Venue is involved in the trading of OTC Equity Securities. 
Because the proposed fee tiers are based on market share calculated by 
share volume, Execution Venue ATSs trading OTC Equity Securities and 
FINRA may be subject to higher tiers than their operations may 
warrant.\71\ The Operating Committee proposes to address this concern 
in two ways. First, the Operating Committee proposes to increase the 
number of Equity Execution Venue tiers, as discussed above. Second, the 
Operating Committee determined to discount the market share of 
Execution Venue ATSs exclusively trading OTC Equity Securities as well 
as the market share of the FINRA ORF when calculating their tier 
placement. Because the disparity in share volume between Execution 
Venues trading in OTC Equity Securities and NMS Stocks is based on the 
different number of shares per trade for OTC Equity Securities and NMS 
Stocks, the Operating Committee believes that discounting the share 
volume of such Execution Venue ATSs as well as the market share of the 
FINRA ORF would address the difference in shares per trade for OTC 
Equity Securities and NMS Stocks. Specifically, the Operating Committee 
proposes to impose a discount based on the objective measure of the 
average shares per trade ratio between NMS Stocks and OTC Equity 
Securities. Based on available data from the second quarter of 2017, 
the average shares per trade ratio between NMS Stocks and OTC Equity 
Securities is 0.17%.
---------------------------------------------------------------------------

    \71\ Suspension Order at 31664-5.
---------------------------------------------------------------------------

    The practical effect of applying such a discount for trading in OTC 
Equity Securities is to shift Execution Venue ATSs exclusively trading 
OTC Equity Securities to tiers for smaller Execution Venues and with 
lower fees. For example, under the Original Proposal, one Execution 
Venue ATS exclusively trading OTC Equity Securities was placed in the 
first CAT Fee tier, which had a quarterly fee of $63,375. With the 
imposition of the proposed tier changes and the discount, this ATS 
would be ranked in Tier 3 and would owe a quarterly fee of $21,126.
    In developing the proposed discount for Equity Execution Venue ATSs 
exclusively trading OTC Equity Securities and FINRA, the Operating 
Committee evaluated different alternatives to address the concerns 
related to OTC Equity Securities, including creating a separate tier 
structure for Execution Venues trading OTC Equity Securities (like the 
separate tier for Options Execution Venues) as well as the proposed 
discounting method for Execution Venue ATSs exclusively trading OTC 
Equity Securities and FINRA. For these alternatives, the Operating 
Committee considered how each alternative would affect the recovery 
allocations. In addition, each of these options was considered in the 
context of the full model, as changes in each variable in the model 
affect other variables in the model when allocating the total CAT costs 
among CAT Reporters. The Operating Committee did not adopt a separate 
tier structure for Equity Execution Venues trading OTC Equity 
Securities as they determined that the proposed discount approach 
appropriately addresses the concern. The Operating Committee determined 
to adopt the proposed discount because it directly relates to the 
concern regarding the trading patterns and operations in the OTC Equity 
Securities markets, and is an objective discounting method.
    By increasing the number of tiers for Equity Execution Venues and 
imposing a discount on the market share of share volume calculation for 
trading in OTC Equity Securities, the Operating Committee believes that 
the proposed fees for Equity Execution Venues would not impose an undue 
or inappropriate burden on competition under Section 6 or Section 15A 
of the Exchange Act. Moreover, the Operating Committee believes that 
the proposed fees appropriately take into account the distinctions in 
the securities trading operations of different Equity Execution Venues, 
as required under the funding principles of the CAT NMS Plan.\72\ As 
discussed above, the larger number of tiers more closely tracks the 
variety of sizes of equity share volume of Equity Execution Venues. In 
addition, the proposed discount recognizes the different types of 
trading operations at Equity Execution Venues trading OTC Equity 
Securities versus those trading NMS Stocks, thereby more closing 
matching the relative revenue generation by Equity Execution Venues 
trading OTC Equity Securities to their CAT Fees.
---------------------------------------------------------------------------

    \72\ Section 11.2(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Accordingly, with this Amendment, the Exchange proposes to amend 
paragraph (b)(2) of the proposed fee schedule to indicate that the 
market share for Equity ATSs exclusively trading OTC Equity Securities 
as well as the market share of the FINRA ORF would be discounted. In 
addition, as discussed above, to address concerns related to smaller 
ATSs, including those that exclusively trade OTC Equity Securities, the 
Exchange proposes to amend paragraph (b)(2) of the proposed fee 
schedule to add two additional tiers for Equity Execution Venues, to 
establish the percentages and fees for Tiers 3 and 4 as described, and 
to revise the percentages and fees for Tiers 1 and 2 as described.
(B) Market Makers
    In the Original Proposal, the Operating Committee proposed to 
include both Options Market Maker quotes and equities market maker 
quotes in the calculation of total message traffic for such market 
makers for purposes of tiering for Industry Members (other than 
Execution Venue ATSs). The Commission and commenters raised questions 
as to whether the proposed treatment of Options Market Maker quotes may 
result in an undue or inappropriate burden on competition or may lead 
to a reduction in market quality.\73\ To address this concern, the 
Operating Committee determined to discount the Options Market Maker 
quotes by the trade to quote ratio for options when calculating message 
traffic for Options Market Makers. Similarly, to avoid disincentives to 
quoting behavior on the equities side as well, the Operating Committee 
determined to discount equity market maker quotes by the trade to quote 
ratio for equities when calculating message traffic for equities market 
makers.
---------------------------------------------------------------------------

    \73\ See Suspension Order at 31663-4; SIFMA Letter at 4-6; FIA 
Principal Traders Group Letter at 3; Sidley Letter at 2-6; Group One 
Letter at 2-6; and Belvedere Letter at 2.
---------------------------------------------------------------------------

    In the Original Proposal, market maker quotes were treated the same 
as other message traffic for purposes of tiering for Industry Members 
(other than

[[Page 59116]]

Execution Venue ATSs). Commenters noted, however, that charging 
Industry Members on the basis of message traffic will impact market 
makers disproportionately because of their continuous quoting 
obligations. Moreover, in the context of options market makers, message 
traffic would include bids and offers for every listed options strikes 
and series, which are not an issue for equities.\74\ The Operating 
Committee proposes to address this concern in two ways. First, the 
Operating Committee proposes to discount Options Market Maker quotes 
when calculating the Options Market Makers' tier placement. 
Specifically, the Operating Committee proposes to impose a discount 
based on the objective measure of the trade to quote ratio for options. 
Based on available data from June 2016 through June 2017, the trade to 
quote ratio for options is 0.01%. Second, the Operating Committee 
proposes to discount equities market maker quotes when calculating the 
equities market makers' tier placement. Specifically, the Operating 
Committee proposes to impose a discount based on the objective measure 
of the trade to quote ratio for equities. Based on available data for 
June 2016 through June 2017, this trade to quote ratio for equities is 
5.43%.
---------------------------------------------------------------------------

    \74\ Suspension Order at 31664.
---------------------------------------------------------------------------

    The practical effect of applying such discounts for quoting 
activity is to shift market makers' calculated message traffic lower, 
leading to the potential shift to tiers for lower message traffic and 
reduced fees. Such an approach would move sixteen Industry Member CAT 
Reporters that are market makers to a lower tier than in the Original 
Proposal. For example, under the Original Proposal, Broker-Dealer Firm 
ABC was placed in the first CAT Fee tier, which had a quarterly fee of 
$101,004. With the imposition of the proposed tier changes and the 
discount, Broker-Dealer Firm ABC, an options market maker, would be 
ranked in Tier 3 and would owe a quarterly fee of $40,899.
    In developing the proposed market maker discounts, the Operating 
Committee considered various discounts for Options Market Makers and 
equity market makers, including discounts of 50%, 25%, 0.00002%, as 
well as the 5.43% for option market makers and 0.01% for equity market 
makers. Each of these options were considered in the context of the 
full model, as changes in each variable in the model affect other 
variables in the model when allocating the total CAT costs among CAT 
Reporters. The Operating Committee determined to adopt the proposed 
discount because it directly relates to the concern regarding the 
quoting requirement, is an objective discounting method, and has the 
desired potential to shift market makers to lower fee tiers.
    By imposing a discount on Options Market Makers and equities market 
makers' quoting traffic for the calculation of message traffic, the 
Operating Committee believes that the proposed fees for market makers 
would not impose an undue or inappropriate burden on competition under 
Section 6 or Section 15A of the Exchange Act. Moreover, the Operating 
Committee believes that the proposed fees appropriately take into 
account the distinctions in the securities trading operations of 
different Industry Members, and avoid disincentives, such as a 
reduction in market quality, as required under the funding principles 
of the CAT NMS Plan.\75\ The proposed discounts recognize the different 
types of trading operations presented by Options Market Makers and 
equities market makers, as well as the value of the market makers' 
quoting activity to the market as a whole. Accordingly, the Operating 
Committee believes that the proposed discounts will not impact the 
ability of small Options Market Makers or equities market makers to 
provide liquidity.
---------------------------------------------------------------------------

    \75\ Section 11.2(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Accordingly, with this Amendment, the Exchange proposes to amend 
paragraph (b)(1) of the proposed fee schedule to indicate that the 
message traffic related to equity market maker quotes and Options 
Market Maker quotes would be discounted. In addition, the Exchange 
proposes to define the term ``Options Market Maker'' in paragraph 
(a)(1) of the proposed fee schedule.
(C) Comparability/Allocation of Costs
    Under the Original Proposal, 75% of CAT costs were allocated to 
Industry Members (other than Execution Venue ATSs) and 25% of CAT costs 
were allocated to Execution Venues. This cost allocation sought to 
maintain the greatest level of comparability across the funding model, 
where comparability considered affiliations among or between CAT 
Reporters. The Commission and commenters expressed concerns regarding 
whether the proposed 75%/25% allocation of CAT costs is consistent with 
the Plan's funding principles and the Exchange Act, including whether 
the allocation places a burden on competition or reduces market 
quality. The Commission and commenters also questioned whether the 
approach of accounting for affiliations among CAT Reporters in setting 
CAT Fees disadvantages non-affiliated CAT Reporters or otherwise 
burdens competition in the market for trading services.\76\
---------------------------------------------------------------------------

    \76\ See Suspension Order at 31662-3; SIFMA Letter at 3; Sidley 
Letter at 6-7; Group One Letter at 2; and Belvedere Letter at 2.
---------------------------------------------------------------------------

    In response to these concerns, the Operating Committee determined 
to revise the proposed funding model to focus the comparability of CAT 
Fees on the individual entity level, rather than primarily on the 
comparability of affiliated entities. In light of the interconnected 
nature of the various aspects of the funding model, the Operating 
Committee determined to revise various aspects of the model to enhance 
comparability at the individual entity level. Specifically, to achieve 
such comparability, the Operating Committee determined to (1) decrease 
the number of tiers for Industry Members (other than Execution Venue 
ATSs) from nine to seven; (2) change the allocation of CAT costs 
between Equity Execution Venues and Options Execution Venues from 75%/
25% to 67%/33%; and (3) adjust tier percentages and recovery 
allocations for Equity Execution Venues, Options Execution Venues and 
Industry Members (other than Execution Venue ATSs). With these changes, 
the proposed funding model provides fee comparability for the largest 
individual entities, with the largest Industry Members (other than 
Execution Venue ATSs), Equity Execution Venues and Options Execution 
Venues each paying a CAT Fee of approximately $81,000 each quarter.
(i) Number of Industry Member Tiers
    In the Original Proposal, the proposed funding model had nine tiers 
for Industry Members (other than Execution Venue ATSs). The Operating 
Committee determined that reducing the number of tiers from nine tiers 
to seven tiers (and adjusting the predefined Industry Member 
Percentages as well) continues to provide a fair allocation of fees 
among Industry Members and appropriately distinguishes between Industry 
Members with differing levels of message traffic. In reaching this 
conclusion, the Operating Committee considered historical message 
traffic generated by Industry Members across all exchanges and as 
submitted to FINRA's OATS, and considered the distribution of firms 
with similar levels

[[Page 59117]]

of message traffic, grouping together firms with similar levels of 
message traffic. Based on this, the Operating Committee determined that 
seven tiers would group firms with similar levels of message traffic, 
while also achieving greater comparability in the model for the 
individual CAT Reporters with the greatest market share or message 
traffic.
    In developing the proposed seven tier structure, the Operating 
Committee considered remaining at nine tiers, as well as reducing the 
number of tiers down to seven when considering how to address the 
concerns raised regarding comparability. For each of the alternatives, 
the Operating Committee considered the assignment of various 
percentages of Industry Members to each tier as well as various 
percentages of Industry Member recovery allocations for each 
alternative. Each of these options was considered in the context of its 
effects on the full funding model, as changes in each variable in the 
model affect other variables in the model when allocating the total CAT 
costs among CAT Reporters. The Operating Committee determined that the 
seven tier alternative provided the most fee comparability at the 
individual entity level for the largest CAT Reporters, while both 
providing logical breaks in tiering for Industry Members with different 
levels of message traffic and a sufficient number of tiers to provide 
for the full spectrum of different levels of message traffic for all 
Industry Members.
(ii) Allocation of CAT Costs Between Equity and Options Execution 
Venues
    The Operating Committee also determined to adjust the allocation of 
CAT costs between Equity Execution Venues and Options Execution Venues 
to enhance comparability at the individual entity level. In the 
Original Proposal, 75% of Execution Venue CAT costs were allocated to 
Equity Execution Venues, and 25% of Execution Venue CAT costs were 
allocated to Options Execution Venues. To achieve the goal of increased 
comparability at the individual entity level, the Operating Committee 
analyzed a range of alternative splits for revenue recovery between 
Equity and Options Execution Venues, along with other changes in the 
proposed funding model. Based on this analysis, the Operating Committee 
determined to allocate 67 percent of Execution Venue costs recovered to 
Equity Execution Venues and 33 percent to Options Execution Venues. The 
Operating Committee determined that a 67/33 allocation between Equity 
and Options Execution Venues enhances the level of fee comparability 
for the largest CAT Reporters. Specifically, the largest Equity and 
Options Execution Venues would pay a quarterly CAT Fee of approximately 
$81,000.
    In developing the proposed allocation of CAT costs between Equity 
and Options Execution Venues, the Operating Committee considered 
various different options for such allocation, including keeping the 
original 75%/25% allocation, as well as shifting to a 70%/30%, 67%/33%, 
or 57.75%/42.25% allocation. For each of the alternatives, the 
Operating Committee considered the effect each allocation would have on 
the assignment of various percentages of Equity Execution Venues to 
each tier as well as various percentages of Equity Execution Venue 
recovery allocations for each alternative. Moreover, each of these 
options was considered in the context of the full model, as changes in 
each variable in the model affect other variables in the model when 
allocating the total CAT costs among CAT Reporters. The Operating 
Committee determined that the 67%/33% allocation between Equity and 
Options Execution Venues provided the greatest level of fee 
comparability at the individual entity level for the largest CAT 
Reporters, while still providing for appropriate fee levels across all 
tiers for all CAT Reporters.
(iii) Allocation of Costs Between Execution Venues and Industry Members
    The Operating Committee determined to allocate 25% of CAT costs to 
Execution Venues and 75% to Industry Members (other than Execution 
Venue ATSs), as it had in the Original Proposal. The Operating 
Committee determined that this 75%/25% allocation, along with the other 
changes proposed above, led to the most comparable fees for the largest 
Equity Execution Venues, Options Execution Venues and Industry Members 
(other than Execution Venue ATSs). The largest Equity Execution Venues, 
Options Execution Venues and Industry Members (other than Execution 
Venue ATSs) would each pay a quarterly CAT Fee of approximately 
$81,000.
    As a preliminary matter, the Operating Committee determined that it 
is appropriate to allocate most of the costs to create, implement and 
maintain the CAT to Industry Members for several reasons. First, there 
are many more broker-dealers expected to report to the CAT than 
Participants (i.e., 1,541 broker-dealer CAT Reporters versus 22 
Participants). Second, since most of the costs to process CAT 
reportable data is generated by Industry Members, Industry Members 
could be expected to contribute toward such costs. Finally, as noted by 
the SEC, the CAT ``substantially enhance[s] the ability of the SROs and 
the Commission to oversee today's securities markets,'' \77\ thereby 
benefitting all market participants. After making this determination, 
the Operating Committee analyzed several different cost allocations, as 
discussed further below, and determined that an allocation where 75% of 
the CAT costs should be borne by the Industry Members (other than 
Execution Venue ATSs) and 25% should be paid by Execution Venues was 
most appropriate and led to the greatest comparability of CAT Fees for 
the largest CAT Reporters.
---------------------------------------------------------------------------

    \77\ Securities Exchange Act Rel. No. 67457 (Jul 18, 2012), 77 
FR 45722, 45726 (Aug. 1, 2012) (``Rule 613 Adopting Release'').
---------------------------------------------------------------------------

    In developing the proposed allocation of CAT costs between 
Execution Venues and Industry Members (other than Execution Venue 
ATSs), the Operating Committee considered various different options for 
such allocation, including keeping the original 75%/25% allocation, as 
well as shifting to an 80%/20%, 70%/30%, or 65%/35% allocation. Each of 
these options was considered in the context of the full model, 
including the effect on each of the changes discussed above, as changes 
in each variable in the model affect other variables in the model when 
allocating the total CAT costs among CAT Reporters. In particular, for 
each of the alternatives, the Operating Committee considered the effect 
each allocation had on the assignment of various percentages of Equity 
Execution Venues, Options Execution Venues and Industry Members (other 
than Execution Venue ATSs) to each relevant tier as well as various 
percentages of recovery allocations for each tier. The Operating 
Committee determined that the 75%/25% allocation between Execution 
Venues and Industry Members (other than Execution Venue ATSs) provided 
the greatest level of fee comparability at the individual entity level 
for the largest CAT Reporters, while still providing for appropriate 
fee levels across all tiers for all CAT Reporters.
(iv) Affiliations
    The funding principles set forth in Section 11.2 of the Plan 
require that the fees charged to CAT Reporters with the most CAT-
related activity (measured by market share and/or message traffic, as 
applicable) are generally comparable (where, for these comparability 
purposes, the tiered fee structure takes into consideration 
affiliations between

[[Page 59118]]

or among CAT Reporters, whether Execution Venue and/or Industry 
Members). The proposed funding model satisfies this requirement. As 
discussed above, under the proposed funding model, the largest Equity 
Execution Venues, Options Execution Venues, and Industry Members (other 
than Execution Venue ATSs) pay approximately the same fee. Moreover, 
the Operating Committee believes that the proposed funding model takes 
into consideration affiliations between or among CAT Reporters as 
complexes with multiple CAT Reporters will pay the appropriate fee 
based on the proposed fee schedule for each of the CAT Reporters in the 
complex. For example, a complex with a Tier 1 Equity Execution Venue 
and Tier 2 Industry Member will a pay the same as another complex with 
a Tier 1 Equity Execution Venue and Tier 2 Industry Member.
(v) Fee Schedule Changes
    Accordingly, with this Amendment, the Exchange proposes to amend 
paragraphs (b)(1) and (2) of the proposed fee schedule to reflect the 
changes discussed in this section. Specifically, the Exchange proposes 
to amend paragraph (b)(1) and (2) of the proposed fee schedule to 
update the number of tiers, and the fees and percentages assigned to 
each tier to reflect the described changes.
(D) Market Share/Message Traffic
    In the Original Proposal, the Operating Committee proposed to 
charge Execution Venues based on market share and Industry Members 
(other than Execution Venue ATSs) based on message traffic. Commenters 
questioned the use of the two different metrics for calculating CAT 
Fees.\78\ The Operating Committee continues to believe that the 
proposed use of market share and message traffic satisfies the 
requirements of the Exchange Act and the funding principles set forth 
in the CAT NMS Plan. Accordingly, the proposed funding model continues 
to charge Execution Venues based on market share and Industry Members 
(other than Execution Venue ATSs) based on message traffic.
---------------------------------------------------------------------------

    \78\ Suspension Order at 31663; FIA Principal Traders Group 
Letter at 2.
---------------------------------------------------------------------------

    In drafting the Plan and the Original Proposal, the Operating 
Committee expressed the view that the correlation between message 
traffic and size does not apply to Execution Venues, which they 
described as producing similar amounts of message traffic regardless of 
size. The Operating Committee believed that charging Execution Venues 
based on message traffic would result in both large and small Execution 
Venues paying comparable fees, which would be inequitable, so the 
Operating Committee determined that it would be more appropriate to 
treat Execution Venues differently from Industry Members in the funding 
model. Upon a more detailed analysis of available data, however, the 
Operating Committee noted that Execution Venues have varying levels of 
message traffic. Nevertheless, the Operating Committee continues to 
believe that a bifurcated funding model--where Industry Members (other 
than Execution Venue ATSs) are charged fees based on message traffic 
and Execution Venues are charged based on market share--complies with 
the Plan and meets the standards of the Exchange Act for the reasons 
set forth below.
    Charging Industry Members based on message traffic is the most 
equitable means for establishing fees for Industry Members (other than 
Execution Venue ATSs). This approach will assess fees to Industry 
Members that create larger volumes of message traffic that are 
relatively higher than those fees charged to Industry Members that 
create smaller volumes of message traffic. Since message traffic, along 
with fixed costs of the Plan Processor, is a key component of the costs 
of operating the CAT, message traffic is an appropriate criterion for 
placing Industry Members in a particular fee tier.
    The Operating Committee also believes that it is appropriate to 
charge Execution Venues CAT Fees based on their market share. In 
contrast to Industry Members (other than Execution Venue ATSs), which 
determine the degree to which they produce the message traffic that 
constitutes CAT Reportable Events, the CAT Reportable Events of 
Execution Venues are largely derivative of quotations and orders 
received from Industry Members that the Execution Venues are required 
to display. The business model for Execution Venues, however, is 
focused on executions in their markets. As a result, the Operating 
Committee believes that it is more equitable to charge Execution Venues 
based on their market share rather than their message traffic.
    Similarly, focusing on message traffic would make it more difficult 
to draw distinctions between large and small exchanges, including 
options exchanges in particular. For instance, the Operating Committee 
analyzed the message traffic of Execution Venues and Industry Members 
for the period of April 2017 to June 2017 and placed all CAT Reporters 
into a nine-tier framework (i.e., a single tier may include both 
Execution Venues and Industry Members). The Operating Committee's 
analysis found that the majority of exchanges (15 total) were grouped 
in Tiers 1 and 2. Moreover, virtually all of the options exchanges were 
in Tiers 1 and 2.\79\ Given the concentration of options exchanges in 
Tiers 1 and 2, the Operating Committee believes that using a funding 
model based purely on message traffic would make it more difficult to 
distinguish between large and small options exchanges, as compared to 
the proposed bifurcated fee approach.
---------------------------------------------------------------------------

    \79\ The Participants note that this analysis did not place MIAX 
PEARL in Tier 1 or Tier 2 since the exchange commenced trading on 
February 6, 2017.
---------------------------------------------------------------------------

    In addition, the Operating Committee also believes that it is 
appropriate to treat ATSs as Execution Venues under the proposed 
funding model since ATSs have business models that are similar to those 
of exchanges, and ATSs also compete with exchanges. For these reasons, 
the Operating Committee believes that charging Execution Venues based 
on market share is more appropriate and equitable than charging 
Execution Venues based on message traffic.
(E) Time Limit
    In the Original Proposal, the Operating Committee did not impose 
any time limit on the application of the proposed CAT Fees. As 
discussed above, the Operating Committee developed the proposed funding 
model by analyzing currently available historical data. Such historical 
data, however, is not as comprehensive as data that will be submitted 
to the CAT. Accordingly, the Operating Committee believes that it will 
be appropriate to revisit the funding model once CAT Reporters have 
actual experience with the funding model. Accordingly, the Operating 
Committee proposes to include a sunsetting provision in the proposed 
fee model. The proposed CAT Fees will sunset two years after the 
operative date of the CAT NMS Plan amendment adopting CAT Fees for 
Participants. Specifically, the Exchange proposes to add paragraph (d) 
of the proposed fee schedule to include this sunsetting provision. Such 
a provision will provide the Operating Committee and other market 
participants with the opportunity to reevaluate the performance of the 
proposed funding model.

[[Page 59119]]

(F) Tier Structure/Decreasing Cost per Unit
    In the Original Proposal, the Operating Committee determined to use 
a tiered fee structure. The Commission and commenters questioned 
whether the decreasing cost per additional unit (of message traffic in 
the case of Industry Members, or of share volume in the case of 
Execution Venues) in the proposed fee schedules burdens competition by 
disadvantaging small Industry Members and Execution Venues and/or by 
creating barriers to entry in the market for trading services and/or 
the market for broker-dealer services.\80\
---------------------------------------------------------------------------

    \80\ Suspension Order at 31667.
---------------------------------------------------------------------------

    The Operating Committee does not believe that decreasing cost per 
additional unit in the proposed fee schedules places an unfair 
competitive burden on Small Industry Members and Execution Venues. 
While the cost per unit of message traffic or share volume necessarily 
will decrease as volume increases in any tiered fee model using fixed 
fee percentages and, as a result, Small Industry Members and small 
Execution Venues may pay a larger fee per message or share, this 
comment fails to take account of the substantial differences in the 
absolute fees paid by Small Industry Members and small Execution Venues 
as opposed to large Industry Members and large Execution Venues. For 
example, under the fee proposals, Tier 7 Industry Members would pay a 
quarterly fee of $105, while Tier 1 Industry Members would pay a 
quarterly fee of $81,483. Similarly, a Tier 4 Equity Execution Venue 
would pay a quarterly fee of $129, while a Tier 1 Equity Execution 
Venue would pay a quarterly fee of $81,048. Thus, Small Industry 
Members and small Execution Venues are not disadvantaged in terms of 
the total fees that they actually pay. In contrast to a tiered model 
using fixed fee percentages, the Operating Committee believes that 
strictly variable or metered funding models based on message traffic or 
share volume would be more likely to affect market behavior and may 
present administrative challenges (e.g., the costs to calculate and 
monitor fees may exceed the fees charged to the smallest CAT 
Reporters).
(G) Other Alternatives Considered
    In addition to the various funding model alternatives discussed 
above regarding discounts, number of tiers and allocation percentages, 
the Operating Committee also discussed other possible funding models. 
For example, the Operating Committee considered allocating the total 
CAT costs equally among each of the Participants, and then permitting 
each Participant to charge its own members as it deems appropriate.\81\ 
The Operating Committee determined that such an approach raised a 
variety of issues, including the likely inconsistency of the ensuing 
charges, potential for lack of transparency, and the impracticality of 
multiple SROs submitting invoices for CAT charges. The Operating 
Committee therefore determined that the proposed funding model was 
preferable to this alternative.
---------------------------------------------------------------------------

    \81\ See FIA Principal Traders Group Letter at 2; Belvedere 
Letter at 4.
---------------------------------------------------------------------------

(H) Industry Member Input
    Commenters expressed concern regarding the level of Industry Member 
input into the development of the proposed funding model, and certain 
commenters have recommended a greater role in the governance of the 
CAT.\82\ The Participants previously addressed this concern in its 
letters responding to comments on the Plan and the CAT Fees.\83\ As 
discussed in those letters, the Participants discussed the funding 
model with the Development Advisory Group (``DAG''), the advisory group 
formed to assist in the development of the Plan, during its original 
development.\84\ Moreover, Industry Members currently have a voice in 
the affairs of the Operating Committee and operation of the CAT 
generally through the Advisory Committee established pursuant to Rule 
613(b)(7) and Section 4.13 of the Plan. The Advisory Committee attends 
all meetings of the Operating Committee, as well as meetings of various 
subcommittees and working groups, and provides valuable and critical 
input for the Participants' and Operating Committee's consideration. 
The Operating Committee continues to believe that that Industry Members 
have an appropriate voice regarding the funding of the Company.
---------------------------------------------------------------------------

    \82\ See Suspension Order at 31662; MFA Letter at 1-2.
    \83\ Letter from Participants to Brent J. Fields, Secretary, SEC 
(Sept. 23, 2016) (``Plan Response Letter''); Letter from CAT NMS 
Plan Participants to Brent J. Fields, Secretary, SEC (June 29, 2017) 
(``Fee Rule Response Letter'').
    \84\ Fee Rule Response Letter at 2; Plan Response Letter at 18.
---------------------------------------------------------------------------

(I) Conflicts of Interest
    Commenters also raised concerns regarding Participant conflicts of 
interest in setting the CAT Fees.\85\ The Participants previously 
responded to this concern in both the Plan Response Letter and the Fee 
Rule Response Letter.\86\ As discussed in those letters, the Plan, as 
approved by the SEC, adopts various measures to protect against the 
potential conflicts issues raised by the Participants' fee-setting 
authority. Such measures include the operation of the Company as a not 
for profit business league and on a break-even basis, and the 
requirement that the Participants file all CAT Fees under Section 19(b) 
of the Exchange Act. The Operating Committee continues to believe that 
these measures adequately protect against concerns regarding conflicts 
of interest in setting fees, and that additional measures, such as an 
independent third party to evaluate an appropriate CAT Fee, are 
unnecessary.
---------------------------------------------------------------------------

    \85\ See Suspension Order at 31662; FIA Principal Traders Group 
at 3.
    \86\ See Plan Response Letter at 16, 17; Fee Rule Response 
Letter at 10-12.
---------------------------------------------------------------------------

(J) Fee Transparency
    Commenters also argued that they could not adequately assess 
whether the CAT Fees were fair and equitable because the Operating 
Committee has not provided details as to what the Participants are 
receiving in return for the CAT Fees.\87\ The Operating Committee 
provided a detailed discussion of the proposed funding model in the 
Plan, including the expenses to be covered by the CAT Fees. In 
addition, the agreement between the Company and the Plan Processor sets 
forth a comprehensive set of services to be provided to the Company 
with regard to the CAT. Such services include, without limitation: User 
support services (e.g., a help desk); tools to allow each CAT Reporter 
to monitor and correct their submissions; a comprehensive compliance 
program to monitor CAT Reporters' adherence to Rule 613; publication of 
detailed Technical Specifications for Industry Members and 
Participants; performing data linkage functions; creating comprehensive 
data security and confidentiality safeguards; creating query 
functionality for regulatory users (i.e., the Participants, and the SEC 
and SEC staff); and performing billing and collection functions. The 
Operating Committee further notes that the services provided by the 
Plan Processor and the costs related thereto were subject to a bidding 
process.
---------------------------------------------------------------------------

    \87\ See FIA Principal Traders Group at 3; SIFMA Letter at 3.
---------------------------------------------------------------------------

(K) Funding Authority
    Commenters also questioned the authority of the Operating Committee 
to impose CAT Fees on Industry

[[Page 59120]]

Members.\88\ The Participants previously responded to this same comment 
in the Plan Response Letter and the Fee Rule Response Letter.\89\ As 
the Participants previously noted, SEC Rule 613 specifically 
contemplates broker-dealers contributing to the funding of the CAT. In 
addition, as noted by the SEC, the CAT ``substantially enhance[s] the 
ability of the SROs and the Commission to oversee today's securities 
markets,'' \90\ thereby benefitting all market participants. Therefore, 
the Operating Committing continues to believe that it is equitable for 
both Participants and Industry Members to contribute to funding the 
cost of the CAT.
---------------------------------------------------------------------------

    \88\ See Suspension Order at 31661-2; SIFMA Letter at 2.
    \89\ See Plan Response Letter at 9-10; Fee Rule Response Letter 
at 3-4.
    \90\ Rule 613 Adopting Release at 45726.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with the provisions of Section 6(b)(5) of the Act,\91\ 
which require, among other things, that the Exchange rules must be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest, and not designed to permit 
unfair discrimination between customers, issuers, brokers and dealers, 
and Section 6(b)(4) of the Act,\92\ which requires that Exchange rules 
provide for equitable allocation of reasonable dues, fees and other 
charges among its members and issuers and other persons using its 
facilities. As discussed above, the SEC approved the bifurcated, 
tiered, fixed fee funding model in the CAT NMS Plan, finding it was 
reasonable and that it equitably allocated fees among Participants and 
Industry Members. The Exchange believes that the proposed tiered fees 
adopted pursuant to the funding model approved by the SEC in the CAT 
NMS Plan are reasonable, equitably allocated and not unfairly 
discriminatory.
---------------------------------------------------------------------------

    \91\ 15 U.S.C. 78f(b)(5).
    \92\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that this proposal is consistent with the Act 
because it implements, interprets or clarifies the provisions of the 
Plan, and is designed to assist the Exchange and its Industry Members 
in meeting regulatory obligations pursuant to the Plan. In approving 
the Plan, the SEC noted that the Plan ``is necessary and appropriate in 
the public interest, for the protection of investors and the 
maintenance of fair and orderly markets, to remove impediments to, and 
perfect the mechanism of a national market system, or is otherwise in 
furtherance of the purposes of the Act.'' \93\ To the extent that this 
proposal implements, interprets or clarifies the Plan and applies 
specific requirements to Industry Members, the Exchange believes that 
this proposal furthers the objectives of the Plan, as identified by the 
SEC, and is therefore consistent with the Act.
---------------------------------------------------------------------------

    \93\ Approval Order at 84697.
---------------------------------------------------------------------------

    The Exchange believes that the proposed tiered fees are reasonable. 
First, the total CAT Fees to be collected would be directly associated 
with the costs of establishing and maintaining the CAT, where such 
costs include Plan Processor costs and costs related to insurance, 
third party services and the operational reserve. The CAT Fees would 
not cover Participant services unrelated to the CAT. In addition, any 
surplus CAT Fees cannot be distributed to the individual Participants; 
such surpluses must be used as a reserve to offset future fees. Given 
the direct relationship between the fees and the CAT costs, the 
Exchange believes that the total level of the CAT Fees is reasonable.
    In addition, the Exchange believes that the proposed CAT Fees are 
reasonably designed to allocate the total costs of the CAT equitably 
between and among the Participants and Industry Members, and are 
therefore not unfairly discriminatory. As discussed in detail above, 
the proposed tiered fees impose comparable fees on similarly situated 
CAT Reporters. For example, those with a larger impact on the CAT 
(measured via message traffic or market share) pay higher fees, whereas 
CAT Reporters with a smaller impact pay lower fees. Correspondingly, 
the tiered structure lessens the impact on smaller CAT Reporters by 
imposing smaller fees on those CAT Reporters with less market share or 
message traffic. In addition, the fee structure takes into 
consideration distinctions in securities trading operations of CAT 
Reporters, including ATSs trading OTC Equity Securities, and equity and 
options market makers.
    Moreover, the Exchange believes that the division of the total CAT 
costs between Industry Members and Execution Venues, and the division 
of the Execution Venue portion of total costs between Equity and 
Options Execution Venues, is reasonably designed to allocate CAT costs 
among CAT Reporters. The 75%/25% division between Industry Members 
(other than Execution Venue ATSs) and Execution Venues maintains the 
greatest level of comparability across the funding model. For example, 
the cost allocation establishes fees for the largest Industry Members 
(i.e., those Industry Members in Tier 1) that are comparable to the 
largest Equity Execution Venues and Options Execution Venues (i.e., 
those Execution Venues in Tier 1). Furthermore, the allocation of total 
CAT cost recovery recognizes the difference in the number of CAT 
Reporters that are Industry Members (other than Execution Venue ATSs) 
versus CAT Reporters that are Execution Venues. Similarly, the 67%/33% 
allocation between Equity and Options Execution Venues also helps to 
provide fee comparability for the largest CAT Reporters.
    Finally, the Exchange believes that the proposed fees are 
reasonable because they would provide ease of calculation, ease of 
billing and other administrative functions, and predictability of a 
fixed fee. Such factors are crucial to estimating a reliable revenue 
stream for the Company and for permitting CAT Reporters to reasonably 
predict their payment obligations for budgeting purposes.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Section 6(b)(8) of the Act \94\ requires that Exchange rules not 
impose any burden on competition that is not necessary or appropriate. 
The Exchange does not believe that the proposed amendments to its Fee 
Schedule will result in any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. The Exchange 
notes that the proposed rule change implements provisions of the CAT 
NMS Plan approved by the Commission, and is designed to assist the 
Exchange in meeting its regulatory obligations pursuant to the Plan. 
Similarly, all national securities exchanges and FINRA are proposing 
this proposed fee schedule to implement the requirements of the CAT NMS 
Plan. Therefore, this is not a competitive fee filing and, therefore, 
it does not raise competition issues between and among the exchanges 
and FINRA.
---------------------------------------------------------------------------

    \94\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Moreover, as previously described, the Exchange believes that the 
proposed rule change fairly and equitably allocates costs among CAT 
Reporters. In particular, the proposed fee schedule is structured to 
impose comparable fees on similarly situated CAT Reporters, and lessen 
the impact on smaller CAT Reporters. CAT Reporters with similar levels 
of CAT activity will pay similar fees. For example, Industry Members 
(other than Execution Venue ATSs) with

[[Page 59121]]

higher levels of message traffic will pay higher fees, and those with 
lower levels of message traffic will pay lower fees. Similarly, 
Execution Venue ATSs and other Execution Venues with larger market 
share will pay higher fees, and those with lower levels of market share 
will pay lower fees. Therefore, given that there is generally a 
relationship between message traffic and/or market share to the CAT 
Reporter's size, smaller CAT Reporters generally pay less than larger 
CAT Reporters. Accordingly, the Exchange does not believe that the CAT 
Fees would have a disproportionate effect on smaller or larger CAT 
Reporters. In addition, ATSs and exchanges will pay the same fees based 
on market share. Therefore, the Exchange does not believe that the fees 
will impose any burden on the competition between ATSs and exchanges. 
Accordingly, the Exchange believes that the proposed fees will minimize 
the potential for adverse effects on competition between CAT Reporters 
in the market.
    Furthermore, the tiered, fixed fee funding model limits the 
disincentives to providing liquidity to the market. Therefore, the 
proposed fees are structured to limit burdens on competitive quoting 
and other liquidity provision in the market.
    In addition, the Operating Committee believes that the proposed 
changes to the Original Proposal, as discussed above in detail, address 
certain competitive concerns raised by commenters, including concerns 
related to, among other things, smaller ATSs, ATSs trading OTC Equity 
Securities, market making quoting and fee comparability. As discussed 
above, the Operating Committee believes that the proposals address the 
competitive concerns raised by commenters.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
is consistent with the Act. In particular, the Commission seeks comment 
on the following:

Allocation of Costs

    (1) Commenters' views as to whether the allocation of CAT costs is 
consistent with the funding principle expressed in the CAT NMS Plan 
that requires the Operating Committee to ``avoid any disincentives such 
as placing an inappropriate burden on competition and a reduction in 
market quality.'' \95\
---------------------------------------------------------------------------

    \95\ Section 11.2(e) of the CAT NMS Plan.
---------------------------------------------------------------------------

    (2) Commenters' views as to whether the allocation of 25% of CAT 
costs to the Execution Venues (including all the Participants) and 75% 
to Industry Members, will incentivize or disincentivize the 
Participants to effectively and efficiently manage the CAT costs 
incurred by the Participants since they will only bear 25% of such 
costs.
    (3) Commenters' views on the determination to allocate 75% of all 
costs incurred by the Participants from November 21, 2016 to November 
21, 2017 to Industry Members (other than Execution Venue ATSs), when 
such costs are development and build costs and when Industry Member 
reporting is scheduled to commence a year later, including views on 
whether such ``fees, costs and expenses . . . [are] fairly and 
reasonably shared among the Participants and Industry Members'' in 
accordance with the CAT NMS Plan.\96\
---------------------------------------------------------------------------

    \96\ Section 11.1(c) of the CAT NMS Plan.
---------------------------------------------------------------------------

    (4) Commenters' views on whether an analysis of the ratio of the 
expected Industry Member-reported CAT messages to the expected SRO-
reported CAT messages should be the basis for determining the 
allocation of costs between Industry Members and Execution Venues.\97\
---------------------------------------------------------------------------

    \97\ The Notice for the CAT NMS Plan did not provide a 
comprehensive count of audit trail message traffic from different 
regulatory data sources, but the Commission did estimate the ratio 
of all SRO audit trail messages to OATS audit trail messages to be 
1.9431. See Securities Exchange Act Release No. 77724 (April 27, 
2016), 81 FR 30613, 30721 n.919 and accompanying text (May 17, 
2016).
---------------------------------------------------------------------------

    (5) Any additional data analysis on the allocation of CAT costs, 
including any existing supporting evidence.

Comparability

    (6) Commenters' views on the shift in the standard used to assess 
the comparability of CAT Fees, with the emphasis now on comparability 
of individual entities instead of affiliated entities, including views 
as to whether this shift is consistent with the funding principle 
expressed in the CAT NMS Plan that requires the Operating Committee to 
establish a fee structure in which the fees charged to ``CAT Reporters 
with the most CAT-related activity (measured by market share and/or 
message traffic, as applicable) are generally comparable (where, for 
these comparability purposes, the tiered fee structure takes into 
consideration affiliations between or among CAT Reporters, whether 
Execution Venues and/or Industry Members).'' \98\
---------------------------------------------------------------------------

    \98\ Section 11.2(c) of the CAT NMS Plan.
---------------------------------------------------------------------------

    (7) Commenters' views as to whether the reduction in the number of 
tiers for Industry Members (other than Execution Venue ATSs) from nine 
to seven, the revised allocation of CAT costs between Equity Execution 
Venues and Options Execution Venues from a 75%/25% split to a 67%/33% 
split, and the adjustment of all tier percentages and recovery 
allocations achieves comparability across individual entities, and 
whether these changes should have resulted in a change to the 
allocation of 75% of total CAT costs to Industry Members (other than 
Execution Venue ATSs) and 25% of such costs to Execution Venues.

Discounts

    (8) Commenters' views as to whether the discounts for options 
market-makers, equities market-makers, and Equity ATSs trading OTC 
Equity Securities are clear, reasonable, and consistent with the 
funding principle expressed in the CAT NMS Plan that requires the 
Operating Committee to ``avoid any disincentives such as placing an 
inappropriate burden on competition and a reduction in market 
quality,'' \99\ including views as to whether the discounts for market-
makers limit any potential disincentives to act as a market-maker and/
or to provide liquidity due to CAT fees.
---------------------------------------------------------------------------

    \99\ Section 11.2(e) of the CAT NMS Plan.
---------------------------------------------------------------------------

Calculation of Costs and Imposition of CAT Fees

    (9) Commenters' views as to whether the amendment provides 
sufficient information regarding the amount of costs incurred from 
November 21, 2016 to November 21, 2017, particularly, how those costs 
were calculated, how those costs relate to the proposed CAT Fees, and 
how costs incurred after November 21, 2017 will be assessed upon 
Industry Members and Execution Venues;
    (10) Commenters' views as to whether the timing of the imposition 
and collection of CAT Fees on Execution Venues and Industry Members is 
reasonably related to the timing of when the Company expects to incur 
such development and implementation costs.\100\
---------------------------------------------------------------------------

    \100\ Section 11.1(c) of the CAT NMS Plan.
---------------------------------------------------------------------------

    (11) Commenters' views on dividing CAT costs equally among each of 
the Participants, and then each Participant charging its own members as 
it deems appropriate, taking into consideration the possibility of 
inconsistency in

[[Page 59122]]

charges, the potential for lack of transparency, and the impracticality 
of multiple SROs submitting invoices for CAT charges.

Burden on Competition and Barriers to Entry

    (12) Commenters' views as to whether the allocation of 75% of CAT 
costs to Industry Members (other than Execution Venue ATSs) imposes any 
burdens on competition to Industry Members, including views on what 
baseline competitive landscape the Commission should consider when 
analyzing the proposed allocation of CAT costs.
    (13) Commenters' views on the burdens on competition, including the 
relevant markets and services and the impact of such burdens on the 
baseline competitive landscape in those relevant markets and services.
    (14) Commenters' views on any potential burdens imposed by the fees 
on competition between and among CAT Reporters, including views on 
which baseline markets and services the fees could have competitive 
effects on and whether the fees are designed to minimize such effects.
    (15) Commenters' general views on the impact of the proposed fees 
on economies of scale and barriers to entry.
    (16) Commenters' views on the baseline economies of scale and 
barriers to entry for Industry Members and Execution Venues and the 
relevant markets and services over which these economies of scale and 
barriers to entry exist.
    (17) Commenters' views as to whether a tiered fee structure 
necessarily results in less active tiers paying more per unit than 
those in more active tiers, thus creating economies of scale, with 
supporting information if possible.
    (18) Commenters' views as to how the level of the fees for the 
least active tiers would or would not affect barriers to entry.
    (19) Commenters' views on whether the difference between the cost 
per unit (messages or market share) in less active tiers compared to 
the cost per unit in more active tiers creates regulatory economies of 
scale that favor larger competitors and, if so:
    (a) How those economies of scale compare to operational economies 
of scale; and
    (b) Whether those economies of scale reduce or increase the current 
advantages enjoyed by larger competitors or otherwise alter the 
competitive landscape.
    (20) Commenters' views on whether the fees could affect competition 
between and among national securities exchanges and FINRA, in light of 
the fact that implementation of the fees does not require the unanimous 
consent of all such entities, and, specifically:
    (a) Whether any of the national securities exchanges or FINRA are 
disadvantaged by the fees; and
    (b) If so, whether any such disadvantages would be of a magnitude 
that would alter the competitive landscape.
    (21) Commenters' views on any potential burden imposed by the fees 
on competitive quoting and other liquidity provision in the market, 
including, specifically:
    (a) Commenters' views on the kinds of disincentives that discourage 
liquidity provision and/or disincentives that the Commission should 
consider in its analysis;
    (b) Commenters' views as to whether the fees could disincentivize 
the provision of liquidity; and
    (c) Commenters' views as to whether the fees limit any 
disincentives to provide liquidity.
    (22) Commenters' views as to whether the amendment adequately 
responds to and/or addresses comments received on related filings.

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-PEARL-2017-20 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-PEARL-2017-20. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-PEARL-2017-20, and should be submitted 
on or before January 4, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\101\
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    \101\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-27014 Filed 12-13-17; 8:45 am]
 BILLING CODE 8011-01-P


