[Federal Register Volume 86, Number 140 (Monday, July 26, 2021)]
[Notices]
[Pages 40114-40134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15810]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92451; File No. 4-698]


Joint Industry Plan; Order Instituting Proceedings To Determine 
Whether To Approve or Disapprove an Amendment to the National Market 
System Plan Governing the Consolidated Audit Trail

July 20, 2021.

I. Introduction

    On March 31, 2021, the Operating Committee for Consolidated Audit 
Trail, LLC (``CAT LLC'' or the ``Company''), on behalf of the following 
parties to the National Market System Plan Governing the Consolidated 
Audit Trail (the ``CAT NMS Plan'' or ``Plan''): \1\ BOX Exchange LLC; 
Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, 
Inc., Cboe EDGX Exchange, Inc., Cboe C2 Exchange, Inc., Cboe Exchange, 
Inc., Financial Industry Regulatory Authority, Inc. (``FINRA''), 
Investors Exchange LLC, Long-Term Stock Exchange, Inc., Miami 
International Securities Exchange LLC, MEMX, LLC, MIAX Emerald, LLC, 
MIAX PEARL, LLC, Nasdaq BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, 
Nasdaq MRX, LLC, Nasdaq PHLX LLC, The NASDAQ Stock Market LLC, New York 
Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago, 
Inc., and NYSE National, Inc. (collectively, the ``Participants,'' 
``self-regulatory organizations,'' or ``SROs'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') pursuant 
to Section 11A(a)(3) of the Securities Exchange Act of 1934 (``Exchange 
Act''),\2\ and Rule 608 thereunder,\3\ a proposed amendment (``Proposed 
Amendment'') to the CAT NMS Plan to implement a revised funding model 
(``Proposed Funding Model'') for the consolidated audit trail (``CAT'') 
and to establish a fee schedule for Participant CAT fees in accordance 
with the Proposed Funding Model (``Participant Fee Schedule''). The 
Proposed Amendment was published for comment in the Federal Register on 
April 21, 2021.\4\
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    \1\ The CAT NMS Plan is a national market system plan approved 
by the Commission pursuant to Section 11A of the Exchange Act and 
the rules and regulations thereunder. See Securities Exchange Act 
Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 
2016).
    \2\ 15 U.S.C. 78k-1(a)(3).
    \3\ 17 CFR 242.608.
    \4\ See Notice of Filing of Amendment to the National Market 
System Plan Governing the Consolidated Audit Trail, Release No. 
91555 (April 14, 2021), 86 FR 21050 (``Notice''). Comments received 
in response to the Notice can be found on the Commission's website 
at https://www.sec.gov/comments/4-698/4-698-a.htm.

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[[Page 40115]]

    This order institutes proceedings, under Rule 608(b)(2)(i) of 
Regulation NMS,\5\ to determine whether to disapprove the Proposed 
Amendment or to approve the Proposed Amendment with any changes or 
subject to any conditions the Commission deems necessary or appropriate 
after considering public comment.
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    \5\ 17 CFR 242.608(b)(2)(i).
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II. Background

    On July 11, 2012, the Commission adopted Rule 613 of Regulation 
NMS, which required the SROs to submit a national market system 
(``NMS'') plan to create, implement and maintain a consolidated audit 
trail that would capture customer and order event information for 
orders in NMS securities.\6\ On November 15, 2016, the Commission 
approved the CAT NMS Plan.\7\ Under the CAT NMS Plan, the Operating 
Committee of the Company, of which each Participant is a member, has 
the discretion (subject to the funding principles set forth in the 
Plan) to establish funding for the Company to operate the CAT, 
including establishing fees to be paid by the Participants and Industry 
Members.\8\
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    \6\ 17 CFR 242.613.
    \7\ See supra note 1.
    \8\ The CAT NMS Plan defines ``Industry Member'' as ``a member 
of a national securities exchange or a member of a national 
securities association.'' See CAT NMS Plan, supra note 1, at Section 
1.1. See also id. at Section 11.1(b).
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    The Plan specified that, in establishing the funding of the 
Company, the Operating Committee shall establish ``a tiered fee 
structure in which the fees charged to: (1) CAT Reporters \9\ that are 
Execution Venues,\10\ including ATSs,\11\ are based upon the level of 
market share; (2) Industry Members' non-ATS activities are based upon 
message traffic; and (3) 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 Venues 
and/or Industry Members).'' \12\ Under the Plan, such fees are to be 
implemented in accordance with various funding principles, including an 
``allocation of the Company's related costs among Participants and 
Industry Members that is consistent with the Exchange Act taking into 
account . . . distinctions in the securities trading operations of 
Participants and Industry Members and their relative impact upon the 
Company resources and operations'' and the ``avoid[ance of] any 
disincentives such as placing an inappropriate burden on competition 
and reduction in market quality.'' \13\
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    \9\ The CAT NMS Plan defines ``CAT Reporter'' as ``each national 
securities exchange, national securities association and Industry 
Member that is required to record and report information to the 
Central Repository pursuant to SEC Rule 613(c).'' Id. at Section 
1.1.
    \10\ The CAT NMS Plan defines ``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).'' Id.
    \11\ Id.
    \12\ Id. at Section 11.2(c). See Article XI of the CAT NMS Plan 
for additional detail.
    \13\ See CAT NMS Plan, supra note 1, at Section 11.2(b) and (e).
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    On May 15, 2020, the Commission adopted amendments to the CAT NMS 
Plan designed to increase the Participants' financial accountability 
for the timely completion of the CAT (``Financial Accountability 
Amendments'').\14\ The Financial Accountability Amendments added 
Section 11.6 to the CAT NMS Plan to govern the recovery from Industry 
Members of any fees, costs, and expenses (including legal and 
consulting fees, costs and expenses) incurred by or for the Company in 
connection with the development, implementation and operation of the 
CAT from June 22, 2020 until such time that the Participants have 
completed Full Implementation of CAT NMS Plan Requirements \15\ 
(``Post-Amendment Expenses''). Section 11.6 establishes target 
deadlines for four critical implementation milestones (Periods 1, 2, 3 
and 4) \16\ and reduces the amount of fee recovery available to the 
Participants if these deadlines are missed.\17\
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    \14\ See Securities Exchange Act Release No. 88890, 85 FR 31322 
(May 22, 2020).
    \15\ ``Full Implementation of CAT NMS Plan Requirements'' means 
``the point at which the Participants have satisfied all of their 
obligations to build and implement the CAT, such that all CAT system 
functionality required by Rule 613 and the CAT NMS Plan has been 
developed, successfully tested, and fully implemented at the initial 
Error Rates specified by Section 6.5(d)(i) or less, including 
functionality that efficiently permits the Participants and the 
Commission to access all CAT Data required to be stored in the 
Central Repository pursuant to Section 6.5(a), including Customer 
Account Information, Customer-ID, Customer Identifying Information, 
and Allocation Reports, and to analyze the full lifecycle of an 
order across the national market system, from order origination 
through order execution or order cancellation, including any related 
allocation information provided in an Allocation Report. This 
Financial Accountability Milestone shall be considered complete as 
of the date identified in a Quarterly Progress Report meeting the 
requirements of Section 6.6(c).'' See CAT NMS Plan, supra note 1, at 
Section 1.1.
    \16\ Id. at Section 11.6(a)(i).
    \17\ Id. at Section 11.6(a)(ii) and (iii).
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    On April 21, 2021, the Nasdaq and Cboe Participants \18\ filed 
proposed rule changes to adopt a fee schedule to establish CAT fees 
applicable to their Industry Members \19\ in accordance with the 
Proposed Funding Model (the ``Industry Member Fee Filings''). In the 
Industry Member Fee Filings, the Nasdaq and Cboe Participants stated 
that the fee schedule provisions will become operative upon the 
Commission's approval of the Proposed Amendment. On June 17, 2021, the 
Commission temporarily suspended the Nasdaq and Cboe Participants' 
Industry Member Fee Filings and instituted proceedings to determine 
whether those filings should be approved or disapproved.\20\
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    \18\ Cboe BYX Exchange, Inc. (``CboeBYX''), Cboe BZX Exchange, 
Inc. (``CboeBZX''), Cboe C2 Exchange, Inc. (``C2''), Cboe EDGA 
Exchange, Inc. (``Cboe EDGA''), Cboe EDGX Exchange, Inc. (``Cboe 
EDGX''), Cboe Exchange, Inc. (``Cboe''), NASDAQ BX, Inc. (``BX''), 
Nasdaq GEMX, LLC (``GEMX''), Nasdaq ISE, LLC (``ISE''), Nasdaq MRX, 
LLC (``MRX''), NASDAQ PHLX LLC (``Phlx''), The NASDAQ Stock Market 
LLC (``Nasdaq'') (collectively, the ``Nasdaq and Cboe 
Participants'').
    \19\ See Securities Exchange Act Release Nos. 91750 (May 4, 
2021), 86 FR 25045 (May 10, 2021) (SR-BX-2021-018) (``Proposed Fee 
Filing Notice''); 91751 (May 4, 2021), 86 FR 24941 (May 10, 2021) 
(SR-PHLX-2021-25); 91752 (May 4, 2021), 86 FR 24921 (May 10, 2021) 
(SR-NASDAQ-2021-029); 91753 (May 4, 2021), 86 FR 24994 (May 10, 
2021) (SR-MRX-2021-05); 91755 (May 4, 2021), 86 FR 25035 (May 10, 
2021) (SR-ISE-2021-08); 91756 (May 4, 2021), 86 FR 24979 (May 10, 
2021) (SR-GEMX-2021-03); 91757 (May 4, 2021), 86 FR 24911 (May 10, 
2021) (SR-C2-2021-008); 91758 (May 4, 2021), 86 FR 25004 (May 10, 
2021) (SR-CboeEDGX-2021-024); 91759 (May 4, 2021), 86 FR 24956 (May 
10, 2021) (SR-CboeEDGA-2021-010); 91760 (May 4, 2021), 86 FR 24966 
(May 10, 2021) (SR-CBOE-2021-030); 91761 (May 4, 2021), 86 FR 25016 
(May 10, 2021) (SR-CboeBYX-2021-011); and 91762 (May 4, 2021), 86 FR 
24931 (May 10, 2021) (SR-CboeBZX-2021-034).
    \20\ See Securities Exchange Act Release No. 92207 (June 17, 
2021), 86 FR 33448 (June 24, 2021).
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III. Summary of Proposal

    Under the Proposed Amendment, the Operating Committee proposes to 
revise certain aspects of the funding model set forth in Article XI of 
the CAT NMS Plan (the ``Original Funding Model''). The Original Funding 
Model uses a bifurcated funding approach in which costs associated with 
building and operating the CAT would be borne by (1) Industry Members 
(other than ATSs that execute transactions in Eligible Securities \21\ 
(``Execution Venue ATSs'')) through fixed tiered fees based on message 
traffic for Eligible Securities, and (2) Participants and Industry

[[Page 40116]]

Members that are Execution Venue ATSs for Eligible Securities through 
fixed tiered fees based on market share. The Operating Committee 
proposes to amend the CAT NMS Plan to adopt the Proposed Funding Model. 
The Proposed Funding Model would continue to require many of the same 
elements as the Original Funding Model, including the bifurcated 
funding approach, and the use of market share and message traffic.\22\ 
The Proposed Funding Model, however, would revise the Original Funding 
Model in certain ways, including (1) dividing the CAT costs between 
Participants and Industry Members, rather than between Execution Venues 
and Industry Members (other than Execution Venue ATSs); (2) removing 
share volume in OTC Equity Securities from the calculation of market 
share for national securities associations; (3) eliminating the use of 
tiers in calculating CAT fees for Participants and Industry Members; 
(4) removing from the CAT NMS Plan funding principles the requirement 
that the fees charged to CAT Reporters with the most CAT-related 
activity be generally comparable; (5) eliminating references to fixed 
fees for Participants and Industry Members; (6) adopting certain 
minimum and maximum CAT fees for Industry Members and Participants; and 
(7) imposing certain discounts for market making activity when 
calculating Industry Member CAT fees.
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    \21\ The CAT NMS Plan defines ``Eligible Securities'' as 
including NMS securities and OTC Equity Securities.'' See CAT NMS 
Plan, supra note 1, at Section 1.1.
    \22\ In the description of the Proposed Amendment, the Operating 
Committee states that message traffic will be calculated based on 
Industry Members' Reportable Events reported to the CAT, as defined 
in the CAT Reporting Technical Specifications for Industry Members 
(``IM Reporting Tech Specs''), and that Reporting Events in the 
current IM Reporting Tech Specs that will be counted as message 
traffic include the New Order Event, the Order Route Event and Trade 
Event, but will not include reporting activity related to Customer 
information as established in the CAT Reporting Customer and Account 
Technical Specifications for Industry Members. The Operating 
Committee notes that the Reportable Events may vary if the IM 
Reporting Tech Specs are amended. See Notice, supra note 4, at 
21056-21057.
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    The Operating Committee also proposes to adopt a fee schedule to 
establish the CAT fees applicable to Participants based on the Proposed 
Funding Model. The Participant Fee Schedule would establish the 
allocation percentages and other variables for calculating the CAT fees 
under the Proposed Funding Model.

A. Proposed Funding Model

1. Categorization of Alternative Trading Systems
    The Original Funding Model employs a bifurcated approach in which 
costs associated with building and operating the CAT would be borne by 
(1) Participants and Industry Members that are Execution Venue ATSs for 
Eligible Securities through fees based on market share, and (2) 
Industry Members (other than Execution Venue ATSs) through fees based 
on message traffic. Under the Proposed Funding Model, the concept of an 
Execution Venue would be eliminated, and CAT costs would be divided 
between Participants as a group and Industry Members as a group; 
Execution Venue ATSs would be treated like other Industry Members, 
instead of like Participants.\23\ The Operating Committee explains that 
this would simplify the Proposed Funding Model by requiring all 
Industry Members (instead of Industry Members other than Execution 
Venue ATSs) to pay fees based on message traffic and would address any 
concerns that treating Execution Venue ATSs as Participants would 
create a barrier to entry for smaller ATSs.\24\ Accordingly, under the 
Proposed Amendment, the Operating Committee proposes to delete the 
definition of the term ``Execution Venue'' and related provisions from 
the CAT NMS Plan.\25\
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    \23\ Id. at 21053.
    \24\ Id.
    \25\ Id.
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2. Treatment of OTC Equity Securities
    The Original Funding Model includes reported share volume in OTC 
Equity Securities in the calculation of market share for national 
securities associations.\26\ The Operating Committee proposes to delete 
references to OTC Equity Securities from Section 11.3(a)(i) of the CAT 
NMS Plan. Accordingly, under the Proposed Funding Model, the 
calculation of market share for national securities associations would 
be based solely on the share volume of trades reported in NMS 
Stocks.\27\ The Operating Committee explains that the inclusion of OTC 
Equity Securities share volume in the calculation of market share would 
likely subject FINRA to higher fees since FINRA would be assessed CAT 
fees based on market share calculated by share volume, noting that many 
OTC Equity Securities are priced below one dollar and transactions in 
such OTC Equity Securities tend to involve larger quantities of shares 
than transactions in NMS Stocks.\28\
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    \26\ Id. at 21061.
    \27\ Id.
    \28\ See Notice, supra note 4, at 21061.
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3. No Tiered Fees
    The Original Funding Model requires the use of tiered fees for 
Industry Members and Participants.\29\ The Operating Committee proposes 
to amend Sections 11.1(d), 11.2(c), 11.3(a) and 11.3(b) of the CAT NMS 
Plan to eliminate the concept of tiered fees from the CAT NMS Plan.\30\ 
Accordingly, under the Proposed Funding Model, each Industry Member 
would pay a fee based on its percentage of total Industry Member 
message traffic (subject to proposed market maker message traffic 
discounts,\31\ a minimum fee \32\ and a maximum fee \33\), and each 
Participant would pay a fee based on market share.\34\ The Operating 
Committee believes that tiered fees require continued reassessment of 
changes in message traffic, and that these assessments would be 
subjective and overly complex.\35\
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    \29\ Id. at 21055, 21060.
    \30\ Id.
    \31\ See infra Section III.A.7.
    \32\ See infra Section III.A.6.a.
    \33\ Id.
    \34\ See Notice, supra note 4, at 21055, 21060.
    \35\ Id. at 21056. The Operating Committee notes that it is 
eliminating tiered fees for Participants for the same reasons it 
provided with regard to eliminating tiered fees for Industry 
Members. Id.
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4. Elimination of Fee Comparability Requirement From the CAT NMS Plan 
Funding Principles
    Section 11.2(c) of the CAT NMS Plan 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. 
Section 11.2(c) explains that for comparability purposes, the tiered 
fee structure takes into consideration affiliations between or among 
CAT Reporters. The Operating Committee proposes to remove this 
requirement from Section 11.2(c) of the Plan. According to the 
Operating Committee, the comparability provision was used to determine 
tiers under the Original Funding Model; however, since the Operating 
Committee proposes to remove fee tiering from the Proposed Funding 
Model,\36\ they believe this provision is no longer relevant.\37\
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    \36\ See supra Section III.A.3.
    \37\ See Notice, supra note 4, at 21056.
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5. No Fixed Fees
    The Operating Committee proposes to amend Sections 11.3(a) and (b) 
of the Plan to eliminate references to ``fixed fees'' to be paid by 
Industry Members and Participants from the CAT NMS Plan.\38\ 
Accordingly, under the Proposed Funding Model, the CAT fees to be paid 
by Industry Members would

[[Page 40117]]

vary in accordance with their message traffic and the CAT fees to be 
paid by the Participants would vary in accordance with their market 
share.\39\
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    \38\ Id. at 21059, 21062.
    \39\ Id.
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6. Minimum and Maximum Fees
a. Minimum and Maximum Industry Member CAT Fees
    The Operating Committee proposes to amend Section 11.3(b) of the 
CAT NMS Plan to provide that each Industry Member would be subject to a 
base minimum Industry Member CAT fee (``Minimum Industry Member CAT 
Fee'') and a maximum Industry Member CAT fee (``Maximum Industry Member 
CAT Fee'').\40\ In the Participants' description of the Proposed 
Amendment, the Operating Committee states that the Minimum Industry 
Member CAT Fee would be $125 per quarter for an Industry Member whose 
CAT fee would be less than $125 per quarter, even if it has not yet 
begun to report to the CAT.\41\ If any Industry Member is required to 
pay the Minimum Industry Member CAT Fee, the total additional amount 
paid by all such Industry Members over the amount they otherwise would 
have paid as a result of their message traffic calculation would be 
discounted from all Industry Members other than those that were subject 
to a Minimum Industry Member CAT Fee in accordance with their message 
traffic percentage (``Minimum Industry Member CAT Fee Re-
Allocation'').\42\ The Operating Committee explains that the Minimum 
Industry CAT Fee is intended to ensure that all Industry Members 
meaningfully contribute to the funding of the CAT.\43\
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    \40\ Id. at 21058.
    \41\ Id.
    \42\ Options Market Makers and Equity Market Makers would be 
required to pay the Minimum Industry Member CAT Fee if their 
quarterly CAT fee calculated with the market maker discounts is less 
than $125 per quarter. Id. at 21058, n.56.
    \43\ See Notice, supra note 4, at 21058-59.
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    The Operating Committee also states that the Maximum Industry 
Member CAT Fee would be the fee calculated based on 8% of the total 
message traffic for Industry Members.\44\ If an Industry Member's fee 
is subject to the Maximum Industry Member CAT Fee, any excess amount 
which the Industry Member would have paid as a fee above such Maximum 
Industry Member CAT Fee will be re-allocated among all Industry Members 
(including any Industry Members subject to the Maximum Industry Member 
CAT Fee and any Industry Members subject to the Minimum Industry Member 
CAT Fee) in accordance with their percentage of total message traffic 
(``Maximum Industry Member CAT Fee Re-Allocation'').\45\ The Operating 
Committee explains that the Maximum Industry Member CAT Fee is intended 
to act as a cap on fees for certain Industry Members that, based on 
message traffic alone, may be subject to ``a significant allocation of 
Total CAT Costs.'' \46\
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    \44\ Id. at 21059.
    \45\ Id.
    \46\ Id.
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b. Minimum Participant Fee
    The Operating Committee proposes to amend Section 11.3(a) of the 
CAT NMS Plan to impose a minimum fee to be payable by each Participant 
(``Minimum Participant Fee'') in addition to fees based on market 
share. The Operating Committee explains that this fee would ``ensure 
that all Participants provide a meaningful contribution to the funding 
of the CAT'' \47\ and facilitate billing and other administrative 
functions.\48\
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    \47\ Id. at 21060.
    \48\ Id. at 21059.
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c. Maximum Equities Participant Fee
    The Operating Committee proposes to amend Section 11.3(a)(i) of the 
CAT NMS Plan to provide that any Participant that is a national 
securities association shall pay a maximum fee established by the 
Operating Committee (``Maximum Equities Participant Fee'') instead of 
the higher fee calculated based on such Participant's market share. If 
a Participant's fee is limited to such maximum fee, any excess amount 
which the Participant otherwise would have paid as a fee above such 
maximum amount will be re-allocated among all Equities Participants, 
including any Equities Participants that are subject to the maximum 
fee, in accordance with their market share.\49\ The Operating Committee 
explains that FINRA could have a significant allocation of the CAT fees 
due to the large volume of NMS Stock activity subject to trade 
reporting on FINRA facilities, so the Maximum Equities Participant Fee 
would cap the costs allocated to FINRA. In addition, the Operating 
Committee states that, as one of the largest regulatory users of CAT, 
FINRA should pay a proportionate percentage of the CAT fees 
commensurate with its market share, and that market share is a ``fair 
and reasonable basis for assessing regulatory usage, expense and burden 
among the Participants.'' \50\
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    \49\ See Notice, supra note 4, at 21061.
    \50\ Id. at 21062.
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7. Market Maker Discounts
    The Operating Committee proposes to amend Section 11.3(b) of the 
CAT NMS Plan to add market maker message traffic discounts to the 
Proposed Funding Model. Under the Original Funding Model, there is no 
distinction between the treatment of message traffic for market maker 
Industry Members and message traffic for non-market maker Industry 
Members for purposes of calculating Industry Member CAT fees. The 
Operating Committee explains that the proposed discounts are intended 
to address concerns raised previously that treating market maker 
message traffic the same as other message traffic for purposes of 
calculating Industry Member CAT fees would disproportionately impact 
market makers because of their continuous quoting obligations and 
result in an undue or inappropriate burden on competition or a 
reduction in liquidity and market quality.\51\ The Operating Committee 
believes that the proposed discounts would lower CAT fees for market 
makers and encourage their provision of liquidity to the market.\52\
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    \51\ Id. at 21057. See also Securities Exchange Act Release No. 
81067 (June 30, 2017), 82 FR 31656 (July 7, 2017) (``Suspension of 
and Order Instituting Proceedings to Determine Whether to Approve or 
Disapprove Proposed Rule Changes to Establish Fees for Industry 
Members to Fund the Consolidated Audit Trail'').
    \52\ See Notice, supra note 4, at 21057.
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    In the Participants' description of the Proposed Amendment, the 
Operating Committee states that Options Market Maker message traffic 
would be discounted based on the trade-to-quote ratio for options when 
calculating the message traffic of an Industry Member that is an 
Options Market Maker,\53\ and that the trade-to-quote ratio for the 
Options Market Maker discount would be calculated each quarter based on 
the prior quarter's CAT Data.\54\ The proposed discount would be 
calculated by dividing the adjusted trade count \55\ by the total 
number of quotes received by the securities information processors 
(``SIP'') from an exchange.\56\ Each

[[Page 40118]]

Options Market Maker's CAT fee would be calculated by multiplying its 
discounted percentage of total Industry Member message traffic during 
the relevant time period by the Industry Member Allocation,\57\ subject 
to the Minimum Industry Member CAT Fee and the Maximum Industry Member 
CAT Fee.\58\
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    \53\ Id. at 21058. The CAT NMS Plan defines ``Options Market 
Maker'' as ``a broker-dealer registered with an exchange for the 
purpose of making markets in options contracts traded on the 
exchange.'' See CAT NMS Plan, supra note 1, at Section 1.1.
    \54\ The CAT NMS Plan defines ``CAT Data'' as ``data derived 
from Participant Data, Industry Member Data, SIP Data, and such 
other data as the Operating Committee may designate as `CAT Data' 
from time to time.'' Id.
    \55\ The Proposed Amendment describes the adjusted trade count 
as ``the total number of trades for the quarter minus the total 
number of trade busts.'' See Notice, supra note 4, at 21058.
    \56\ For each Options Market Maker, the discount would apply to 
``(1) all message traffic reported to the CAT by the Options Market 
Maker related to an order originated by a market maker in its market 
making account for a security in which it is registered . . . and 
(2) all message traffic for which a `quote sent time' is reported by 
an Options Exchange on behalf of the given Options Market Maker.'' 
Id.
    \57\ See infra Section III.B.2.
    \58\ See Notice, supra note 4, at 21058.
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    Under the Proposed Funding Model, when calculating the message 
traffic of an Industry Member that is an equity market maker in NMS 
Stocks (``Equity Market Maker''), its discounted market making message 
traffic count would be calculated by multiplying its market making 
message traffic in NMS Stocks by the NMS Stock trade-to-quote 
ratio.\59\ In the Participants' description of the Proposed Amendment, 
the Operating Committee states that the trade-to-quote ratio would be 
calculated each quarter based on the prior quarter's CAT Data.\60\ The 
proposed discount would be calculated by dividing the adjusted trade 
count by the total number of quotes received by the SIP from an 
exchange. The Equity Market Maker's CAT fee would be calculated by 
multiplying its discounted percentage of total Industry Member message 
traffic during the relevant time period by the Industry Member 
Allocation,\61\ subject to the Minimum Industry Member CAT Fee and the 
Maximum Industry Member CAT Fee.\62\ The discounted message traffic of 
Options Market Makers and Equity Market Makers would be counted as part 
of total Industry Member message traffic.\63\
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    \59\ Id.
    \60\ Id.
    \61\ See infra Section III.B.2.
    \62\ See Notice, supra note 4, at 21058.
    \63\ Id.
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B. Participant Fee Schedule

1. Total CAT Costs
    Under the Proposed Funding Model, the CAT fees for the relevant 
period would be designed to cover the total CAT costs associated with 
developing, implementing and operating the CAT for the relevant period 
(``Total CAT Costs'').\64\ In the proposed Participant Fee Schedule, 
the Operating Committee proposes to define Total CAT Costs as ``the 
total budgeted costs for the CAT for the relevant year.'' In addition:
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    \64\ Id. at 21050.

    The total budgeted costs for the CAT for the relevant year shall 
be the total CAT costs set forth in the annual operating budget 
approved by the Operating Committee pursuant to Section 11.1(a) of 
the CAT NMS Plan. The total budgeted costs for the CAT for the 
relevant year may be adjusted on a quarterly basis as the Operating 
Committee reasonably deems appropriate for the prudent operation of 
the Company. To the extent that the Operating Committee adjusts the 
total budgeted costs for the CAT for the relevant year during its 
quarterly budget review, the adjusted budgeted costs for the CAT 
will be used in calculating the remaining CAT fees for that 
year.\65\
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    \65\ Id. at 21074.

    The Operating Committee explains that using Total CAT Costs 
budgeted for the year, rather than already incurred CAT costs, would 
allow the Company to collect fees before bills become payable.\66\ The 
Operating Committee notes that, pursuant to Section 11.1(c) of the CAT 
NMS Plan, any surpluses collected will be treated as an operational 
reserve to offset future fees and will not be distributed to the 
Participants as profits.\67\
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    \66\ Id. at 21063.
    \67\ Id.
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2. 75%-25% Allocation Between Industry Members and Participants
    The Proposed Funding Model contemplates allocating CAT costs 
between Participants and Industry Members to permit the calculation of 
CAT fees based on market share for Participants and based on message 
traffic for Industry Members.\68\ The Operating Committee proposes to 
implement this allocation through a 75%-25% allocation between Industry 
Members and Participants.\69\ The Participant CAT fees that are a part 
of the proposed Participant Fee Schedule--Appendix B to the Proposed 
Amendment--would apply this allocation to Participants. Participants 
would file proposed rule changes to apply this allocation to Industry 
Members.\70\ In calculating CAT fees for the relevant period under the 
Proposed Funding Model, Industry Members as a group would pay 75% of 
the Total CAT Costs for the relevant period (``Industry Member 
Allocation'') \71\ and Participants as a group would pay 25% of the 
Total CAT Costs for the relevant period (``Participant 
Allocation'').\72\
---------------------------------------------------------------------------

    \68\ In the Original Funding Model, costs were allocated between 
Execution Venues and certain Industry Members, whereas the Proposed 
Funding Model proposes to allocate costs between Participants and 
Industry Members.
    \69\ See Notice, supra note 4, at 21054.
    \70\ As of the date of this Order, only the Nasdaq and Cboe 
Participants have filed proposed rule changes. See supra note 19.
    \71\ The proposed Participant Fee Schedule states ``[t]he 
Industry Member Allocation for each quarter shall be 75% of 1/4th of 
the Total CAT Costs for the relevant year.'' See Notice, supra note 
4, at 21055. Under the Proposed Funding Model, each Industry Member 
would pay a CAT fee calculated by multiplying its message traffic 
percentage of total Industry Member message traffic per quarter by 
the Industry Member Allocation, subject to the market maker 
discounts for message traffic, as applicable, as well as the Minimum 
Industry Member CAT Fee and the Maximum Industry Member CAT Fee. Id.
    \72\ Id. at 21054. The proposed Participant Fee Schedule states 
``[t]he Participant Allocation for each quarter shall be 25% of 1/
4th of the Total CAT Costs for the relevant year.'' Id. at 21055.
---------------------------------------------------------------------------

    In proposing a 75%-25% allocation between Industry Members and 
Participants, the Operating Committee states that it considered a 
variety of different potential allocations between Industry Members and 
Participants.\73\ For example, the Operating Committee states that it 
considered alternatives in which Participants paid larger contributions 
than 25% of the total CAT costs (e.g., a 50%-50% allocation between 
Industry Members and Participants) and alternatives in which 
Participants paid smaller contributions than 25% of the total CAT 
costs.\74\ In the scenario where the Participants paid larger 
contributions than the 25% allocation, the Operating Committee believed 
that this was not fair or equitable to the Participants.\75\ The 
Operating Committee came to this conclusion by assessing the number of 
Industry Members compared to Participants, noting that ``there are only 
25 Participants and approximately 1,237 Industry Members, as of 
December 2020'', and analyzing the total revenue, noting that 
``Participants only represented approximately 4% of the total CAT 
Reporter revenue; Industry Members represented 96% of the total CAT 
Reporter revenue.'' \76\ Thus, the Operating Committee determined that 
allocating more than 25% of the total CAT costs to the Participants was 
not fair and equitable. Similarly, the Operating Committee did not 
believe that the revenue based allocation approach would be fair to the 
Industry Members because it would impose such a significant percentage 
(96%) of CAT costs on Industry Members.\77\ Additionally, the Operating 
Committee determined that there would be practical difficulties in 
assessing the appropriate revenue figures for all CAT

[[Page 40119]]

Reporters. Based upon its analysis, the Operating Committee decided 
that alternative approaches based upon revenue were not appropriate and 
could potentially have unfair impacts on both the Industry Members and 
the Participants.\78\ Ultimately, the Operating Committee believes that 
the 75%-25% allocation will create a more equitable fee split because 
the Industry Members with the most message traffic and the Participant 
complexes with the most market share would pay comparable CAT fees.\79\ 
The Operating Committee analyzed data from the fourth quarter of 2020, 
and determined that the three Industry Members with the most message 
traffic and the Participant complexes with the highest CAT fees would 
pay annual CAT fees in a similar range of five to six million 
dollars.\80\
---------------------------------------------------------------------------

    \73\ Id. at 21054.
    \74\ Id.
    \75\ See Notice, supra note 4, at 21055.
    \76\ Industry Member revenue was calculated based on the total 
revenue reported in the Industry Member's FOCUS reports. Participant 
revenue was calculated based on revenue information provided in Form 
1 amendments and/or publicly reported figures. Participants are not 
required to file uniform FOCUS-type reports regarding revenue like 
Industry Members. Accordingly, the revenue calculation for 
Participants is not as straightforward as for Industry Members. Id. 
at 21055, n.31.
    \77\ Id. at 21055.
    \78\ Id.
    \79\ Id.
    \80\ Id.
---------------------------------------------------------------------------

3. Participant CAT Fees
    As described above, the Proposed Funding Model provides that the 
Operating Committee shall establish a minimum fee to be payable by each 
Participant in addition to a fee based on market share. In the proposed 
Participant Fee Schedule, the Operating Committee establishes 0.75% of 
the Participant Allocation as the Minimum Participant Fee \81\ 
regardless of market share.\82\ The total Minimum Participant Fees to 
be paid by each Participant would be subtracted from the Participant 
Allocation to determine the ``Adjusted Participant Allocation.'' \83\
---------------------------------------------------------------------------

    \81\ See Notice, supra note 4, at 21060.
    \82\ Id.
    \83\ Id.
---------------------------------------------------------------------------

    The proposed Participant Fee Schedule provides that the Equities 
Participant Allocation would be 60% of the Adjusted Participant 
Allocation and the Options Participant Allocation would be 40% of the 
Adjusted Participant Allocation.\84\ The Operating Committee explained 
that this allocation was determined through negotiations among the 
Participants.\85\
---------------------------------------------------------------------------

    \84\ Id. at 21061. A Participant with both options and equities 
market share would be treated as both an Options Participant and an 
Equities Participant. Id.
    \85\ Id.
---------------------------------------------------------------------------

    Each Participant would pay a quarterly Participant CAT fee to 
recover the costs of the CAT going forward. For Equities Participants, 
the quarterly Participant CAT Fee would be calculated by multiplying 
the Equities Participant Allocation by each Equities Participant's 
percentage of total market share of NMS Stocks for all Equities 
Participants for the prior quarter, subject to the Maximum Equities 
Participant Fee (if applicable), and in addition to the Minimum 
Participant Fee.\86\ For Options Participants, the quarterly 
Participant CAT fee would be calculated by multiplying the Options 
Participant Allocation by each Options Participant's percentage of 
total market share in Listed Options for the prior quarter, in addition 
to the Minimum Participant Fee.\87\
---------------------------------------------------------------------------

    \86\ See Notice, supra note 4, at 21061.
    \87\ Id. at 21062.
---------------------------------------------------------------------------

    The quarterly Participant CAT fee would be a quarterly CAT fee 
based on market share from the prior quarter and the allocation of 
Total CAT Costs under the Proposed Funding Model for the relevant 
year.\88\ The Operating Committee proposes a fee schedule to implement 
the quarterly Participant CAT fee whereby each Participant would be 
assessed a CAT fee, on a quarterly basis, that is 25% of 1/4th of the 
total budgeted annual CAT costs for the relevant year, using CAT Data 
to calculate market share from the prior quarter of the relevant 
year.\89\
---------------------------------------------------------------------------

    \88\ Id. at 21062, 21063.
    \89\ Id. at 21063-21064.
---------------------------------------------------------------------------

    Under the Proposed Funding Model, FINRA, as a national securities 
association, would be subject to the Maximum Equities Participant Fee 
as set by the Operating Committee. The Operating Committee proposes to 
establish in the Participant Fee Schedule a Maximum Equities 
Participant Fee equal to the greater of (x) 20% of the Equities 
Participant Allocation or (y) the highest CAT fee required to be paid 
by any other Equities Participant plus 5% of such highest CAT fee.\90\ 
Accordingly, as discussed above, FINRA would pay its quarterly 
Participant CAT fee based on its market share in NMS Stocks, subject to 
the Maximum Equities Participant Fee.
---------------------------------------------------------------------------

    \90\ Id. at 21061.
---------------------------------------------------------------------------

4. Collection of Fees
    The Participants' description of the Proposed Amendment states that 
the Operating Committee proposes to establish a system for the 
collection of CAT fees pursuant to Section 11.4 of the CAT NMS Plan. 
The Company will provide each Participant with an invoice setting forth 
the quarterly Participant CAT fee for each payment period. Each 
Participant will pay its CAT fees to the Company via the centralized 
system for the collection of CAT fees.\91\
---------------------------------------------------------------------------

    \91\ Id. at 21068.
---------------------------------------------------------------------------

IV. Summary of Comments

    The Commission received 19 comment letters on the Proposed 
Amendment.\92\ 15 comment letters

[[Page 40120]]

object to the Proposed Amendment \93\ and one comment letter supports 
the Proposed Amendment.\94\ In addition, the Commission received two 
comment letters requesting data from the Operating Committee,\95\ one 
comment letter requesting data from the Company,\96\ and one comment 
letter from the Operating Committee providing additional details on an 
illustrative example in Exhibit B to the Proposed Amendment,\97\ and 
two response letters from the Operating Committee.\98\
---------------------------------------------------------------------------

    \92\ See Letters to Vanessa Countryman, Secretary, Commission 
from Doug Patterson, Chief Compliance Officer, Cutler Group, LP, 
dated June 1, 2021, available at https://www.sec.gov/comments/4-698/4698-8855258-238423.pdf (``Cutler Letter''); Kelvin To, Founder and 
President, Data Boiler Technologies, LLC, dated May 3, 2021, 
available at https://www.sec.gov/comments/4-698/4698-8749987-237362.pdf (``Data Boiler Letter''); Joanna Mallers, Secretary, FIA 
Principal Traders Group, dated May 7, 2021, available at https://www.sec.gov/comments/4-698/4698-8776522-237685.pdf (``FIA PTG May 
7th Letter''); Joanna Mallers, Secretary, FIA Principal Traders 
Group, dated May 12, 2021, available at https://www.sec.gov/comments/4-698/4698-8793902-237843.pdf (``FIA PTG May 12th 
Letter''); Matthew Price, Chief Operations Officer, Fidelity Capital 
Markets, dated May 12, 2021, available at https://www.sec.gov/comments/4-698/4698-8791746-237802.pdf (``Fidelity Letter''); Howard 
Meyerson, Managing Director, Financial Information Forum, dated 
April 29, 2021, available at https://www.sec.gov/comments/4-698/4698-8736502-237163.pdf (``FIF April 29th Letter''); Howard 
Meyerson, Managing Director, Financial Information Forum, dated May 
21, 2021, available at https://www.sec.gov/comments/4-698/4698-8843662-238307.pdf (``FIF May 21st Letter''); Marcia E. Asquith, 
Executive Vice President, Board and External Relations, Financial 
Industry Regulatory Authority, Inc., dated May 12, 2021, available 
at https://www.sec.gov/comments/4-698/4698-8793900-237824.pdf 
(``FINRA Letter''); Andrew Stevens, General Counsel, IMC, dated May 
20, 2021, available at https://www.sec.gov/comments/4-698/4698-8819440-238105.pdf (``IMC Letter''); Michael Lewin, Chief Executive 
Officer, Istra LLC, dated May 27, 2021, available at https://www.sec.gov/comments/4-698/4698-8847370-238329.pdf (``Istra 
Letter''); Gary Goldsholle, Chief Regulatory Officer and General 
Counsel, Long-Term Stock Exchange, Inc., dated May 19, 2021, 
available at https://www.sec.gov/comments/4-698/4698-8815749-238025.pdf (``LTSE Letter''); Kirsten Wegner, Chief Executive 
Officer, Modern Markets Initiative, dated May 6, 2021, available at 
https://www.sec.gov/comments/4-698/4698-8771339-237583.pdf (``MMI 
Letter''); Michael Blaugrund, Chief Operating Officer, NYSE Inc., 
dated May 10 2021, available at https://www.sec.gov/comments/4-698/4698-8779961-237701.pdf (``NYSE Letter''); William Bartlett, Chief 
Executive Officer, Parallax Volatility Advisers, L.P., dated June 
28, 2021, available at https://www.sec.gov/comments/4-698/4698-9006549-246006.pdf (``Parallax Letter''); Ellen Greene, Managing 
Director, Equity and Options Market Structure, Securities Industry 
and Financial Markets Association, dated May 12, 2021, available at 
https://www.sec.gov/comments/4-698/4698-8790951-237769.pdf (``SIFMA 
Letter''); James Toes, President and Chief Executive Officer, and 
Andrew D'Amore, Chairman of the Board, Security Traders Association, 
dated June 11, 2021, available at https://www.sec.gov/comments/4-698/4698-8905922-244113.pdf (``STA Letter''); Gunjan Chauhan, Senior 
Managing Director, Global Head of SPDR Capital Markets, State Street 
Global Advisors, dated May 12, 2021, available at https://www.sec.gov/comments/4-698/4698-8793896-237842.pdf (``SSGA 
Letter''); Kevin Donohue, General Counsel, Tower Research Capital 
LLC, dated May 12, 2021, available at https://www.sec.gov/comments/4-698/4698-8793895-237841.pdf (``Tower Letter''); and Thomas M. 
Merritt, Deputy General Counsel, dated May 12, 2021, available at 
https://www.sec.gov/comments/4-698/4698-8790127-237768.pdf (``Virtu 
Letter'').
    \93\ See Data Boiler Letter; Fidelity Letter; FIA PTG May 12th 
Letter; FINRA Letter; IMC Letter; Istra Letter; LTSE Letter; MMI 
Letter; NYSE Letter; SIFMA Letter; SSGA Letter; STA Letter; Tower 
Letter; and Virtu Letter.
    \94\ See Cutler Letter (stating ``[h]aving reviewed the 
Proposal, and having compared it to the previous CAT funding model, 
we see the Amendment as a vast improvement that is more fair and 
equitable to both Market Participants and Industry Members. We would 
urge that the Commission approve this amendment.''). Id. at 1.
    \95\ See FIF April 29th Letter; FIF May 21st Letter.
    \96\ See FIA PTG May 7th Letter.
    \97\ See Letter to Vanessa Countryman, Secretary, Commission 
from Michael Simon, CAT NMS Plan Operating Committee Chair, dated 
May 5, 2021, available at https://www.sec.gov/comments/4-698/4698-8760381-237447.pdf (``CAT Operating Committee May 5th Letter'').
    \98\ See Letters to Vanessa Countryman, Secretary, Commission 
from Michael Simon, CAT NMS Plan Operating Committee Chair, dated 
July 14, 2021, available at https://www.sec.gov/comments/4-698/4698-9061305-246406.pdf (``CAT Operating Committee July 14th Letter I''); 
from Michael Simon, CAT NMS Plan Operating Committee Chair, dated 
July 14, 2021, available at https://www.sec.gov/comments/4-698/4698-9061306-246406.pdf (``CAT Operating Committee July 14th Letter 
II''). CAT Operating Committee July 14th Letter II states, ``these 
responses represent the consensus of the Participants, but that all 
Participants may not fully agree with each response set forth in 
this letter.'' CAT Operating Committee July 14th Letter II at 1-2.
---------------------------------------------------------------------------

Scope of Costs To Be Recovered From Industry Members

    Several commenters question the scope of the CAT costs proposed to 
be recovered from Industry Members.\99\ Two commenters state that 
Industry Members should only be responsible for the direct costs to 
build and operate the CAT, not the Participants' costs of doing 
business as SROs, such as insurance and consulting costs.\100\ One 
commenter states that the Exchange Act and Rule 613 do not even require 
the CAT NMS Plan to impose fees on Industry Members,\101\ and that the 
Participants have failed to justify an ``additive CAT fee,'' \102\ and 
notes the Participants were exclusively responsible for developing the 
CAT and for making decisions about the implementation costs for the 
CAT.\103\ Another commenter asks for justification for why Industry 
Members should bear the costs of the CAT build when they had no 
involvement in the process.\104\
---------------------------------------------------------------------------

    \99\ See SIFMA Letter at 4; Virtu Letter at 5-6; FIA PTG May 
12th Letter at 5; Data Boiler Letter at 8; Tower Letter at 3.
    \100\ See SIFMA Letter at 4; FIA PTG May 12th Letter at 5.
    \101\ See Virtu Letter at 2.
    \102\ Id. at 3.
    \103\ Id. at 2.
    \104\ See MMI Letter at 3. Similarly, this commenter also 
requests the rationale for why ``a small number of brokers should 
pay the vast majority of the now-inflated cost without having any 
insight or authority into the methodology and rationale for the 
cost?'' Id. at 2. The Operating Committee responds that its proposed 
Maximum Industry Member CAT Fee would institute a cap on fees to 
fairly allocate costs to Industry Members to avoid certain Industry 
Members paying a significant allocation of Total CAT Costs. See CAT 
Operating Committee July 14th Letter II at 6-7.
---------------------------------------------------------------------------

    In response to comments objecting to the imposition of CAT costs on 
Industry Members,\105\ the Operating Committee states that Industry 
Members should be required to pay CAT costs in accordance with Rule 613 
and the CAT NMS Plan.\106\ The Operating Committee adds that, because 
all market participants would benefit from the enhanced regulatory 
oversight provided by the CAT, Industry Members and Participants should 
both contribute to covering its costs.\107\
---------------------------------------------------------------------------

    \105\ See Virtu Letter at 2-3; MMI Letter at 3.
    \106\ See CAT Operating Committee July 14th Letter II at 4-5.
    \107\ Id. at 5-6.
---------------------------------------------------------------------------

    Six commenters object to the proposed imposition of historical 
costs on Industry Members.\108\ Several commenters note that Industry 
Members had no input into or control over the decisions resulting in 
the historical costs, including the selection of Thesys Technologies, 
LLC as the initial plan processor,\109\ and the subsequent transition 
to FINRA as the plan processor.\110\ One commenter states, ``the 
Participants must meet a high bar for the Commission to alter course 
and support any proposed rule changes that require non-Participants to 
pay the Thesys costs.'' \111\ One commenter questions the rationale for 
requiring Industry Members to pay 75% of the cost of the transition to 
FINRA, explaining that FINRA is completely funded by the industry.\112\ 
Two commenters object to requiring Industry Members to pay the legal 
and consulting fees incurred by Participants prior to the approval of 
the CAT NMS Plan.\113\ Two commenters criticize the Proposed Amendment 
for requiring new Industry Members to pay CAT fees to recover 
historical costs, while exempting new Participants from such a 
requirement.\114\
---------------------------------------------------------------------------

    \108\ See SIFMA Letter at 6; Virtu Letter at 5-6; Data Boiler 
Letter at 8; Istra Letter at 2-3; Tower Letter at 3; Fidelity Letter 
at 3, 5; MMI Letter at 3; Parallax Letter at 1.
    \109\ See SIFMA Letter at 6; Virtu Letter at 5-6; Fidelity 
Letter at 3, 5; Tower Letter at 3; MMI Letter at 3.
    \110\ See Virtu Letter at 6.
    \111\ See Parallax Letter at 1.
    \112\ See Virtu Letter at 6.
    \113\ See Tower Letter at 3; SIFMA Letter at 6.
    \114\ See Virtu Letter at 6; SIFMA Letter at 6-7.
---------------------------------------------------------------------------

    In response to comments questioning the scope of the costs to be 
recovered from Industry Members,\115\ the Operating Committee states 
that the recovery from Industry Members of the historical costs, 
Thesys-related costs and third-party expenses (including legal, 
consulting and audit expenses) is consistent with the CAT NMS Plan and 
the Exchange Act.\116\ The Operating Committee states that, when 
approving the CAT NMS Plan, the Commission noted that the Exchange Act 
permits the Participants to charge their members fees to fund their 
self-regulatory obligations and that the Plan funding model was 
designed to impose fees reasonably related to the Participants' self-
regulatory obligations since the fees would be directly associated with 
the costs to build and maintain the CAT.\117\ Additionally, the 
Operating Committee states that the Commission considered that the 
Participants could recover the costs of creating and funding the CAT 
central repository in the adopting release for Rule 613.\118\ The 
Operating Committee explains that these costs are critical to the 
creation, implementation and maintenance of the Plan and therefore 
should be within the scope of CAT fees.\119\
---------------------------------------------------------------------------

    \115\ See Data Boiler Letter at 8; FIA PTG May 12th Letter at 2; 
Fidelity Letter at 3, 5; Istra Letter at 2-3; MMI Letter at 3; SIFMA 
Letter at 6; Tower Letter at 3; Virtu Letter at 5-6.
    \116\ See CAT Operating Committee July 14th Letter I at 5.
    \117\ Id. at 5.
    \118\ Id. at 5-6.
    \119\ Id. at 6.
---------------------------------------------------------------------------

Lack of Industry Member Input

    Several commenters express concern that the proposal was developed 
without the involvement of Industry Members.\120\ One commenter states 
that it is ``incredulous of the process used to construct a proposed 
allocation model in which Industry Members are allocated 75% of the 
expenses yet had no meaningful input into the model's development.'' 
\121\ Another commenter opines that Industry Members are being required 
to shoulder most of the costs of the CAT without having had any insight

[[Page 40121]]

into the costs.\122\ Two commenters note the lack of representation of 
Industry Members on the Operating Committee.\123\ One commenter 
believes that the technical expertise of the industry should be 
involved in the development of a new cost allocation proposal that 
contains ``a full explanation of the proposed operating costs and . . . 
an appropriately detailed public disclosure of the operating budget.'' 
\124\ Another commenter suggests that the Commission ask the 
Participants to engage with the industry ``to establish a workable 
allocation methodology that is simple, predictable and aligns 
responsibility for funding regulatory infrastructure with receiving 
economic benefits of the marketplace.'' \125\
---------------------------------------------------------------------------

    \120\ See SIFMA Letter at 2; STA Letter at 2-3; Data Boiler 
Letter at 8; FIA PTG May 12th Letter at 2-3; IMC Letter at 2-3; 
Fidelity Letter at 2-3, 4; Tower Letter at 7; MMI Letter at 2, 3, 4.
    \121\ See FIA PTG May 12th Letter at 3.
    \122\ See MMI Letter at 2, 3.
    \123\ See Tower Letter at 7; Data Boiler Letter at 6. See also 
Parallax Letter at 2 (suggesting the admission of Industry Members 
and independent parties as members of the Operating Committee, along 
with full internal disclosure of costs, would benefit the operation 
of the CAT NMS Plan).
    \124\ See Tower Letter at 7.
    \125\ See NYSE Letter at 5. See also SIFMA Letter at 2 (agreeing 
with this statement).
---------------------------------------------------------------------------

    In response to comments noting a lack of industry participation in 
the development of the Proposed Funding Model,\126\ the Operating 
Committee explains that the CAT Advisory Committee and the public 
notice and comment processes afforded by Rule 608 of Regulation NMS 
\127\ and Section 19 of the Exchange Act \128\ have provided Industry 
Members and other market participants the opportunity to express their 
views on the funding model.\129\ With respect to the comments 
expressing concern over a lack of Industry Member representation on the 
Operating Committee, the Operating Committee states that Industry 
Members can provide meaningful input on CAT matters through the current 
governance structure without compromising Commission and SRO oversight 
of Industry Members.\130\
---------------------------------------------------------------------------

    \126\ See FIA PTG May 12th Letter at 2-3; Fidelity Letter at 2-
4; IMC Letter at 2; SIFMA Letter at 2; STA Letter at 2-3; Tower 
Letter at 7.
    \127\ 17 CFR 242.608.
    \128\ 15 U.S.C. 78s.
    \129\ See CAT Operating Committee July 14th Letter I at 7-8.
    \130\ Id. at 8.
---------------------------------------------------------------------------

Participant Conflicts of Interest

    Six commenters believe that the Participants have conflicts of 
interest that are reflected in the cost allocation proposed for the 
Participants and Industry Members.\131\ Two commenters believe that the 
Participants are attempting to further their commercial interests 
through the proposal at the expense of their Industry Member 
competitors.\132\ One commenter believes that the Participants are 
conflicted when determining how much of their own costs they should pay 
and suggests greater transparency to expose any Participant 
conflicts.\133\ Another commenter states, ``[t]o permit for-profit 
exchanges to allocate 75% of the costs of the CAT to Industry Members 
furthers the Participants' commercial interests at the expense of the 
Industry Members, who have no choice but to pay such fees or else be 
subject to regulatory actions by the Participants.'' \134\ This 
commenter suggests that the Commission require the Participants to 
resubmit a proposal with a transparent analysis and requests that 
Industry Members be permitted adequate representation on the Operating 
Committee.\135\
---------------------------------------------------------------------------

    \131\ See SIFMA Letter at 2; Virtu Letter at 2, 6; FIA PTG May 
12th Letter at 2, 3, 4; Tower Letter at 1, 5, 7; Istra Letter at 2; 
MMI Letter at 4. See also Parallax Letter at 3-4 (stating that the 
proposed market maker discounts benefit the Participants who have 
set the standards for market-making activity, including activity 
resulting in message traffic with low order to trade ratios).
    \132\ See SIFMA Letter at 2; Virtu Letter at 2.
    \133\ See FIA PTG May 12th Letter at 3.
    \134\ See Tower Letter at 5.
    \135\ See Tower Letter at 5.
---------------------------------------------------------------------------

    In response to the comments regarding potential conflicts of 
interests behind the proposed cost allocation for Participants and 
Industry Members,\136\ the Operating Committee states that it disagrees 
with the comments and notes that the CAT NMS Plan contains measures to 
protect against potential conflicts of interest related to CAT fees, 
``including the fee filing requirements under the Exchange Act and 
operating the CAT on a break-even basis.'' \137\
---------------------------------------------------------------------------

    \136\ See Data Boiler Letter at 6, 7; FIA PTG May 12th letter at 
2, 3; MMI Letter at 4; Parallax Letter at 3-4; Tower Letter at 1, 5, 
7.
    \137\ See CAT Operating Committee July 14th Letter I at 8.
---------------------------------------------------------------------------

Lack of Transparency

    Several commenters express concern that the Proposed Funding Model 
lacks sufficient transparency into the operating budget as well as the 
costs proposed to be recovered by the CAT fees.\138\ One commenter 
believes the lack of cost data would make it impossible for the 
Commission and Industry Members to determine whether the CAT is 
operating efficiently.\139\ The commenter adds that detailed cost 
information would be useful for Industry Members to evaluate whether 
certain of their activities are causing the CAT to incur higher 
operating costs, and consequently causing increases in their own CAT 
fees.\140\ This commenter added that it is impossible to evaluate 
whether the Proposed Funding Model is consistent with the Exchange Act 
due to lack of information; in particular, details concerning sources 
of the costs and the operating budget.\141\ Similarly, another 
commenter suggests the provision of non-proprietary cost information to 
allow meaningful input from Industry Members.\142\ Another commenter 
believes that it ``feels like we are being asked to hand over [a] blank 
check with the amount to be filled in later.'' \143\ One commenter 
states, ``the Amendment is virtually silent on the use of funds and 
offers no budget for the CAT's ongoing operation.'' \144\
---------------------------------------------------------------------------

    \138\ See SIFMA Letter at 4-5; Virtu Letter at 4-5; SSGA Letter 
at 1-2; Fidelity Letter at 2, 4-5; NYSE Letter at 2; STA Letter at 
1, 3-4; Tower Letter at 2, 5, 7; MMI Letter at 2, 3-4; FIA PTG May 
12th Letter at 2, 5; IMC Letter at 1, 2; Istra Letter at 1, 2; 
Parallax Letter at 1-2, 5.
    \139\ See SIFMA Letter at 5.
    \140\ Id. at 5.
    \141\ Id. at 4.
    \142\ See STA Letter at 3.
    \143\ See Virtu Letter at 4.
    \144\ See NYSE Letter at 2.
---------------------------------------------------------------------------

    Commenters request detailed information on the historical costs and 
the operating budget.\145\ One commenter recommends that the Proposed 
Amendment disclose its costs and technical requirements, and detail the 
historical costs and projected annual budget for the Plan operating 
expenses, professional services expenses, and plan processor 
expenses.\146\ The commenter recommends that the Participants make the 
annual budget public in the future.\147\ Another commenter states that 
the Proposed Amendment lacks an explanation for the 2021 estimated cost 
of $133 million, including the scale of CAT processing, number of 
reported transactions, data storage sizes and processing 
performed.\148\ The commenter states that an operating budget is 
necessary to determine how much of CAT costs is variable based on 
message traffic.\149\ The commenter recommends that the Operating 
Committee propose a new cost allocation plan that includes a full 
accounting of the historical costs and justification for charging these 
costs to Industry Members.\150\ The commenter also recommends that the 
new proposal explain its proposed operating costs and

[[Page 40122]]

publicly disclose its operating budget.\151\
---------------------------------------------------------------------------

    \145\ Id. at 2; Tower Letter at 2, 7; Istra Letter at 2; 
Fidelity Letter at 5; MMI Letter at 2-3, 4; FIA PTG May 12th Letter 
at 5; Parallax Letter at 1-2, 5.
    \146\ See NYSE Letter at 2.
    \147\ Id. at 2.
    \148\ See Tower Letter at 2.
    \149\ Id. at 2.
    \150\ Id. at 7.
    \151\ Id. at 7.
---------------------------------------------------------------------------

    Another commenter notes that the Proposed Amendment lacks detail on 
the historical CAT assessment costs and requests the Participants to 
provide the opportunity to review the costs incurred before the CAT NMS 
Plan was approved, noting that Industry Members should be permitted 
``to refute the validity of any cost and its allocation to Industry 
Members.'' \152\ Another commenter states that the Proposed Amendment 
provides no transparency into historical and annual costs.\153\ One 
commenter requests the Commission to require the Participants to 
provide a cost-sharing structure with greater transparency, including a 
full accounting of historical costs and a detailed public explanation 
of the proposed operating costs.\154\ The commenter urges greater 
transparency in the operating budget, the cost allocation model, and on 
variable costs, such as messaging costs, and fixed costs, such as 
payroll costs.\155\
---------------------------------------------------------------------------

    \152\ See Fidelity Letter at 5.
    \153\ See FIA PTG May 12th Letter at 5.
    \154\ See MMI Letter at 2-3.
    \155\ Id. at 4.
---------------------------------------------------------------------------

    Commenters also request a breakdown of the estimated CAT costs and 
operating budget.\156\ Two commenters request a copy of the 2021 
operating budget with quarterly updates including actual and revised 
projections.\157\ One of the commenters also requests data to permit 
each Industry Member to calculate its fees, including the data used by 
the Operating Committee to calculate the estimates in Exhibit B to the 
Proposed Amendment.\158\ In a response, the Operating Committee 
provides the following data: (1) The budgeted Total CAT Costs for 2021; 
(2) total Industry Member message traffic counts, including the total 
message counts for Options Market Makers and Equity Market Makers, used 
in the proposal's Exhibit B; (3) unrounded trade-to-quote ratios for 
Listed Options and NMS Stocks; and (4) the method used to calculate an 
Industry Member's quarterly CAT fees.\159\ The Operating Committee 
states that Industry Members can contact FINRA CAT to learn which of 
the anonymized Industry Member information in Exhibit B represents its 
traffic, as well as its total message traffic count and percentage or 
number of its reported events that were treated as events of Options 
Market Makers or Equity Market Makers.\160\ The Operating Committee 
also agrees to provide information to permit an Industry Member to 
calculate its actual CAT fees on an ongoing basis.\161\ Subsequently, 
the first commenter requests further information to understand the 
impact of the funding proposal and help each Industry Member reconcile 
the data it received from the Operating Committee and its internal 
records.\162\ The second commenter finds the response from the 
Operating Committee insufficient and requests a copy of the 2021 
operating budget and any quarterly updates and projected costs, a 
breakdown of fixed and variable expenses, and provision to Industry 
Members of data used to support the selected funding model and the 
funding models that were rejected.\163\
---------------------------------------------------------------------------

    \156\ See SSGA Letter at 2; Fidelity Letter at 5; FIF April 29th 
Letter at 1, 2; FIA PTG May 7th Letter at 2.
    \157\ See FIF April 29th Letter at 1; FIA PTG May 7th Letter at 
2; FIA PTG May 12th Letter at 2.
    \158\ See FIF April 29th Letter at 2. This commenter also 
requests that the Operating Committee publicly provide the options 
and equity trade-to-quote ratios used in the Proposed Amendment's 
Exhibit B and the aggregate number of reportable events of each type 
that are counted toward the total number of reportable events. Id.
    \159\ See CAT Operating Committee May 5th Letter. This response 
was also noted by the Operating Committee in a response to comments. 
See CAT Operating Committee July 14th Letter II at 16.
    \160\ See CAT Operating Committee May 5th Letter at 2.
    \161\ Id. at 2, n.8.
    \162\ See FIF May 21st Letter at 2-3.
    \163\ See FIA PTG May 12th Letter at 2.
---------------------------------------------------------------------------

    Several commenters believe the lack of transparency prevents 
Industry Members from estimating their costs and fees.\164\ One 
commenter believes that the Proposed Amendment lacks information needed 
by Industry Members to calculate their fees as well as to analyze the 
fairness and accuracy of the funding model.\165\ The commenter notes 
that 75 of 1,237 Industry Members would be allocated 99% of Industry 
Member fees, and that the Proposed Amendment claims that this is fair 
without factual support.\166\ One commenter acknowledges the data 
subsequently provided in the response from the Operating Committee 
\167\ and suggests that the Participants regularly provide updated 
message traffic data to Industry Members to allow them to estimate 
their CAT fees.\168\ Another commenter opines that the supplementary 
message traffic data and the 2021 budget information provided by the 
Operating Committee is insufficient to allow Industry Members to 
project their CAT fees.\169\ One commenter suggests that cost recovery 
should have ``transparent inputs'' that would permit Industry Members 
to predict their costs and understand the costs of their actions.\170\
---------------------------------------------------------------------------

    \164\ See Tower Letter at 3; SIFMA Letter at 5, 9; Virtu Letter 
at 4.
    \165\ See Tower Letter at 3.
    \166\ Id.
    \167\ See CAT Operating Committee May 5th Letter.
    \168\ See SIFMA Letter at 5.
    \169\ See Virtu Letter at 4.
    \170\ See Istra Letter at 2-3.
---------------------------------------------------------------------------

    In response to comments requesting additional transparency into CAT 
costs,\171\ the Operating Committee states that it has made publicly 
available substantial annual cost data by providing, upon request, its 
audited financial statements from the inception of Consolidated Audit 
Trail LLC and CAT NMS, LLC through 2020, as required by Section 9.2(a) 
of the CAT NMS Plan.\172\ The Operating Committee explains that the 
audited financial statements contain the following cost categories: 
``technology costs, legal, amortization of developed technology, 
consulting, insurance, professional and administration, and public 
relations.'' \173\ The Operating Committee also states that the 
Proposed Funding Model would provide additional cost transparency 
through the provision of the operating budget at the start of each 
year, as well as the budgeted Total CAT Costs to be used in calculating 
the quarterly CAT fees, and any quarterly budget adjustments.\174\ The 
Operating Committee adds that it proposes to provide additional cost 
information to the industry through webinars, among other methods,\175\ 
and notes the cost-related information it provided in its May 5th 
letter.\176\
---------------------------------------------------------------------------

    \171\ See FIA PTG May 12th Letter at 2, 5; Fidelity Letter at 3, 
5; Istra Letter at 2; MMI Letter at 3, 4; NYSE Letter at 2; Parallax 
Letter at 1-2; SIFMA Letter at 4; STA Letter at 3; SSGA Letter at 1-
2; Tower Letter at 2, 4, 7; Virtu Letter at 4.
    \172\ See CAT Operating Committee July 14th Letter I at 4.
    \173\ Id.
    \174\ Id.
    \175\ Id.
    \176\ Id. at 3-4. See also CAT Operating Committee May 5th 
Letter.
---------------------------------------------------------------------------

    Several commenters believe the Proposed Amendment does not properly 
explain increases in historical and annual costs in excess of prior 
estimates.\177\ One commenter states, ``[t]here may well be 
appropriate--or at least understandable--reasoning for historical and 
ongoing costs to greatly exceed expectations, and that is for the 
Participants to explain and the Commission to review as part of its 
oversight of the SROs.'' \178\ Two commenters ask if any corresponding 
benefits accompany the increased cost

[[Page 40123]]

estimates.\179\ One commenter expresses concern that the Participants 
have no accountability for the costs of the project.\180\ Another 
commenter requests assurances that the CAT will not become an ``ever-
growing expense'' for the industry and investors.\181\ Another 
commenter, a proprietary trading firm, states that it ``captures real 
time market data feeds from over 100 venues around the world, in a 
variety of different products . . . The processing of this historical 
market data might reasonably be compared to the kind of processing that 
the CAT is expected to do . . . While we do not claim that this is a 
perfect comparison, we do posit that the cost to build and maintain the 
CAT should be reasonably comparable.'' \182\ The commenter states that 
its annual cost for this platform is ten times less than the cost 
provided in the Proposed Amendment.\183\
---------------------------------------------------------------------------

    \177\ See FIA PTG May 12th Letter at 4-5; SSGA Letter at 1-2; 
Istra Letter at 2; MMI Letter at 1-2, 3-4; Tower Letter at 1, 2-4; 
Parallax Letter at 2.
    \178\ See Parallax Letter at 2.
    \179\ See MMI Letter at 2; SSGA Letter at 2.
    \180\ See FIA PTG May 12th Letter at 5.
    \181\ See SSGA Letter at 2.
    \182\ See Tower Letter at 4.
    \183\ Id.
---------------------------------------------------------------------------

    In response to comments questioning the increases in CAT costs from 
prior estimates,\184\ the Operating Committee explains that data 
processing and storage costs are the primary CAT cost drivers and that 
these costs have increased significantly each year.\185\ First, the 
Operating Committee states that these costs are directly related to 
data volumes reported to the CAT and that the markets have experienced 
record high volumes, noting that in 2019 and 2021, data volumes were 
five times greater than estimated.\186\ To address the increased 
volume, the CAT's storage and computing needs have accordingly 
increased.\187\ Second, the Operating Committee explains that the 
phased introduction of CAT reporting and functionality results in ``a 
substantial increase in message traffic, processing complexity and 
storage requirements.'' \188\ Third, the Operating Committee states 
that the processing and storage of the many complex reporting scenarios 
relating to Industry Member market activity require complicated 
algorithms that result in ``significant data processing and storage 
costs.'' \189\ Finally, the Operating Committee notes that the 
combination of record CAT Data volumes with the stringent performance 
timelines and operational requirements applicable to the processing of 
CAT Data do not allow much flexibility for cost reductions.\190\
---------------------------------------------------------------------------

    \184\ See FIA PTG May 12th Letter at 4-5; Istra Letter at 2; MMI 
Letter at 1-2, 4; Parallax Letter at 1-2; SSGA Letter at 1-2; Tower 
Letter at 1-4.
    \185\ See CAT Operating Committee July 14th Letter I at 2.
    \186\ Id.
    \187\ Id.
    \188\ Id. at 3.
    \189\ Id.
    \190\ Id.
---------------------------------------------------------------------------

    Some commenters believe that the Proposed Funding Model lacks the 
transparency needed to incentivize the Participants to manage CAT costs 
efficiently.\191\ One commenter states the lack of transparency 
precludes the Operating Committee's accountability and suggests a full 
audit of the CAT's historical costs, ongoing budget and a comparison to 
its estimated benefits.\192\ Another commenter believes that allowing 
Industry Members greater visibility into CAT's expenses would increase 
the Participants' accountability to manage costs.\193\
---------------------------------------------------------------------------

    \191\ See SIFMA Letter at 5; Fidelity Letter at 3, 5; Tower 
Letter at 2; FIA PTG May 12th Letter at 5.
    \192\ See Istra Letter at 1.
    \193\ See Fidelity Letter at 5.
---------------------------------------------------------------------------

    In response to comments urging more transparency to ensure the 
Participants manage CAT Costs efficiently,\194\ the Operating Committee 
states that it ``has a strong focus on cost management and is 
significantly incented to keep costs at an appropriate level.'' \195\ 
The Operating Committee notes that it actively pursues cost saving 
measures and has a Cost Management Working Group to address cost 
management needs.\196\ Additionally, the Operating Committee states 
that the plan processor regularly reviews options to lower compute and 
storage needs and works with CAT technology providers to provide 
services in a cost-effective manner.\197\
---------------------------------------------------------------------------

    \194\ See FIA PTG May 12th Letter at 5; Fidelity Letter at 3; 
Tower Letter at 2, 7.
    \195\ See CAT Operating Committee July 14th Letter I at 4-5.
    \196\ Id. at 5.
    \197\ Id.
---------------------------------------------------------------------------

    Finally, one commenter states that the Proposed Amendment needs to 
explain what would happen if actual CAT operating costs exceed the 
budget and what would happen if the CAT becomes over-budget. The 
commenter believes that a revised amendment should provide further 
details on the CAT budget and potential budget surpluses.\198\ In 
response to the comment,\199\ the Operating Committee explains that it 
would address budget shortfalls or excess fees through updates to the 
budgets and operational reserves.\200\ The Operating Committee states 
that to recover the costs of CAT on an ongoing basis, it will use the 
costs in the annual operating budget as the Total CAT Costs to be used 
to calculate CAT fees, and that these budgeted costs may be adjusted on 
a quarterly basis to address any changes to the budget.\201\ The 
Operating Committee states that if CAT fees exceed the CAT costs, 
despite quarterly budget adjustments, any surplus would be treated as 
an operational reserve to offset fees in future payments, in accordance 
with Section 11.1(c) of the CAT NMS Plan.\202\ If CAT fees are less 
than CAT costs, the Operating Committee states that it ``may address 
the shortfall by using the operational reserve, including the amount of 
the shortfall in future fees and/or seeking to recover the costs via 
other measures in accordance with the Exchange Act.'' \203\
---------------------------------------------------------------------------

    \198\ See Fidelity Letter at 3, 5.
    \199\ Id. at 5.
    \200\ See CAT Operating Committee July 14th Letter I at 6.
    \201\ Id. at 6-7.
    \202\ Id. at 7.
    \203\ Id.
---------------------------------------------------------------------------

Allocation of Costs Between Industry Members and Participants

    Many commenters raise concerns about the proposed allocation of 
costs between Industry Members and Participants.\204\ Several 
commenters argue that the allocation lacks justification for the 
decision to recover 75% of Total CAT Costs from Industry Members and 
25% from Participants.\205\ Two commenters believe the allocation to 
Industry Members is ``arbitrary and unsupportable'' under the Exchange 
Act.\206\ One commenter challenges the Participants' justification for 
the allocation--that there are more Industry Members than Participants 
and Industry Members receive much more revenue than Participants--as 
not providing a rational basis on which to claim that the Proposed 
Amendment provides for a fair allocation of reasonable fees and does 
not impose an undue burden on competition.\207\ Another commenter 
states, ``[i]t is unclear from the proposal why the ability to pay is a 
corollary to CAT costs and an appropriate factor in justifying the 
split.'' \208\ One commenter states that costs are not deemed 
reasonable because a party can afford the costs, because the costs are 
not large enough to be material, or because the costs can be shared 
among thousands of

[[Page 40124]]

Industry Members.\209\ Another commenter believes that the cost 
allocation should have focused on what market participants should pay 
based on costs and benefits, rather than ability to pay based on 
aggregate revenues.\210\
---------------------------------------------------------------------------

    \204\ See Fidelity Letter at 2-4; NYSE Letter at 1-2; Tower 
Letter at 4-5; MMI Letter at 4-5; Istra Letter at 3; SIFMA Letter at 
5-8; Virtu Letter at 3-6; Data Boiler Letter at 7; FIA PTG May 12th 
Letter at 3, 4; FINRA Letter at 3, 4-5; Parallax Letter at 2-3.
    \205\ See Fidelity Letter at 3-4; NYSE Letter at 1-2; Tower 
Letter at 4-5; MMI Letter at 4-5; Istra Letter at 3; Virtu Letter at 
3-4; SIFMA Letter at 5-6.
    \206\ See SIFMA Letter at 5-6; Virtu Letter at 3.
    \207\ See SIFMA Letter at 5-6.
    \208\ See Fidelity Letter at 4.
    \209\ See Parallax Letter at 2.
    \210\ See Virtu Letter at 3-4.
---------------------------------------------------------------------------

    One commenter believes the cost allocation is inequitable and an 
undue burden on Industry Members.\211\ The commenter believes that CAT 
fees should only be imposed on beneficiaries of CAT services,\212\ 
allocated in proportion to benefit received.\213\ The commenter 
believes that market participants that pose higher risks and potential 
conflicts of interest should pay higher fees than other market 
participants.\214\
---------------------------------------------------------------------------

    \211\ See Data Boiler Letter at 6, 7.
    \212\ Id. at 6.
    \213\ Id. at 7.
    \214\ Id. at 8.
---------------------------------------------------------------------------

    One commenter approves the proposed elimination of tiering, but 
expresses concern at the allocation, stating that allocating set 
percentages of total costs to one group over another is the wrong 
approach.\215\ The commenter criticizes the Proposed Amendment for 
basing the allocation on ensuring that the highest paying Industry 
Members pay the same as the highest paying Participants.\216\ 
Additionally, this commenter believes that Participants would have no 
incentive to manage costs if they are only responsible for 25% of Total 
CAT Costs.\217\ For the same reason, another commenter believes there 
is little incentive for Participants to justify their historical costs 
or manage a reasonable and efficient operating budget.\218\ The 
commenter believes the cost allocation methodology differences between 
the Industry Members and the Participants warrants further discussion 
and transparency.\219\
---------------------------------------------------------------------------

    \215\ See FIA PTG May 12th Letter at 4. The Operating Committee 
acknowledges the commenter's support of the elimination of tiering. 
See CAT Operating Committee July 14th Letter II at 8, 13.
    \216\ See FIA PTG May 12th Letter at 4.
    \217\ Id.
    \218\ See MMI Letter at 4-5.
    \219\ Id. at 5.
---------------------------------------------------------------------------

    One commenter notes that the Proposed Funding Model does not 
explain how the 75% allocation to Industry Members relates to overall 
CAT costs resulting from Industry Member reporting and therefore may 
not be supported by Section 11.2(a) and Section 11.2(b) of the CAT NMS 
Plan.\220\ Another commenter suggests a 50%-50% cost allocation between 
Industry Members and Participants and argues that any allocation should 
be transparent and predictable and supported by evidence.\221\ The 
commenter suggests that Industry Member costs be allocated based on the 
value any Industry Member receives from the market.\222\ One commenter 
believes the proposal lacks information for commenters to understand 
how CAT costs are allocated across asset classes.\223\ The commenter 
suggests the creation of a predictable cost allocation methodology 
reached through engagement with Industry Members that aligns costs with 
the receipt of benefits from the market.\224\
---------------------------------------------------------------------------

    \220\ See FINRA Letter at 5. Section 11.2(a) of the CAT NMS Plan 
requires the Operating Committee, in establishing the funding of the 
Company, to create transparent, predictable revenue streams for the 
Company that are aligned with the anticipated costs to build, 
operate and administer the CAT and the other costs of the Company. 
Section 11.2(b) requires the Operating Committee 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 Company 
resources and operations.
    \221\ See Istra Letter at 5-6.
    \222\ Id.
    \223\ See NYSE Letter at 4.
    \224\ Id. at 5.
---------------------------------------------------------------------------

    One commenter believes the proposed allocation is arbitrary because 
the Participants override the allocation with adjusted allocations, 
such as the proposed market maker discounts, the Minimum Industry 
Member CAT Fee and the Maximum Industry Member CAT Fee, and the 
treatment of OTC Equity Security share volume.\225\ The commenter 
believes the Proposed Funding Model would shift the regulatory cost of 
overseeing one Industry Member to another Industry Member, with the 
potential effect of retail investors who transact with small Industry 
Members indirectly subsidizing sophisticated investors who transact 
with large market-makers.\226\ The commenter states, ``the Operating 
Committee has not provided a sufficient regulatory case for a proposed 
funding model which imposes different costs for the same CAT reportable 
events.'' \227\
---------------------------------------------------------------------------

    \225\ See Parallax Letter at 3.
    \226\ Id.
    \227\ Id.
---------------------------------------------------------------------------

    Several commenters believe the proposed cost allocation between 
Industry Members and Participants ignores the time investment and costs 
already incurred by Industry Members to report to the CAT.\228\ One 
commenter notes that Industry Members have had to develop internal 
systems for CAT reporting and that Industry Members have provided 
critical assistance to the Participants in developing Industry Member 
CAT Technical Specifications.\229\ The commenter opines that an 
analysis of the costs incurred by Industry Members for internal 
compliance would demonstrate that the Industry Allocation is not an 
equitable allocation of reasonable fees.\230\ Another commenter notes 
that the Proposed Amendment does not mention the substantial time and 
cost invested by Industry Members into refining reporting 
specifications and building CAT reporting platforms,\231\ and one other 
commenter believes that the Proposed Amendment ignores the substantial 
costs that Industry Members have incurred associated with the 
development, testing and implementation of the CAT.\232\
---------------------------------------------------------------------------

    \228\ See SIFMA Letter at 7-8; FIA PTG May 12th Letter at 5; 
Tower Letter at 4-5. See also Fidelity Letter at 2 (stating that 
Industry Members have spent much time and money on building systems 
to comply with CAT requirements but will not be reimbursed for these 
costs).
    \229\ See SIFMA Letter at 7-8. See also STA Letter at 3 
(describing collaborative efforts by Industry Members and 
Participants to develop technical specifications).
    \230\ See SIFMA Letter at 7-8.
    \231\ See Tower Letter at 4-5.
    \232\ See FIA PTG May 12th Letter at 5.
---------------------------------------------------------------------------

    One commenter states that the Proposed Funding Model treats 
affiliated Participants differently than affiliated Industry Members 
without explaining how this inconsistency is consistent with the 
Exchange Act.\233\ The commenter explains that affiliated Participants 
would be charged based on aggregate market share as a single complex, 
while affiliated Industry Members would be charged individually based 
on individual message traffic. The commenter states, ``[t]his 
methodology seems to be rooted in the Participants' view that it 
provides for a fair allocation of fees under the proposal because it 
results in the largest Participant complexes being charged 
approximately the same level of fees as the largest Industry Members.'' 
The commenter notes that the result is not a fair allocation of 
reasonable fees as the largest Industry Members have multiple 
affiliates that, if viewed as a single aggregated complex like 
affiliated Participants, would pay greater CAT fees than the largest 
Participant complexes.\234\
---------------------------------------------------------------------------

    \233\ See SIFMA Letter at 8.
    \234\ Id.
---------------------------------------------------------------------------

    One commenter questions why equities and options message traffic is 
combined for Industry Member cost allocation purposes, unlike the 
Participant Allocation where 60% of the Total CAT Costs would be 
allocated to

[[Page 40125]]

Equities Participants and 40% would be allocated to Options 
Participants.\235\ The commenter states, ``[i]f message traffic is 
indeed the major driver of CAT costs, then it stands to reason that at 
least 40% of the Industry Member costs be allocated to options (as in 
the Participants' allocation framework), if not significantly more.'' 
\236\
---------------------------------------------------------------------------

    \235\ See Istra Letter at 3-4.
    \236\ Id. at 4.
---------------------------------------------------------------------------

    Four commenters note that, under the proposed allocation, Industry 
Members must not only cover their allocation of the Total CAT Costs, 
but they must also fund FINRA, which would owe its own share of 
Participant CAT fees.\237\ One commenter believes that, including 
FINRA's allocation, the Industry Member Allocation would exceed 
80%.\238\ The commenter notes that the Proposed Amendment does not 
explain why FINRA should be treated the same way as exchanges for 
allocation purposes when Industry Members pay FINRA's operation costs 
through regulatory fees and fines.\239\ Another commenter believes that 
FINRA will raise its fees to help pay for its own Participant 
Allocation, further increasing the cost to be borne by Industry 
Members.\240\ This commenter suggests that the Participants should 
submit a new proposal with a cost methodology supported by data that 
Industry Members can evaluate.\241\ FINRA itself comments, ``[o]ne 
effect of adopting these unsupported allocation criteria would be an 
unjustified increase in FINRA's fee assessments . . .'' \242\ FINRA 
also states that because it relies on regulatory fees from members, the 
Proposed Funding Model would reallocate FINRA's costs to Industry 
Members in addition to the CAT fees to be borne by Industry 
Members.\243\
---------------------------------------------------------------------------

    \237\ See Virtu Letter at 4, 6; Fidelity Letter at 4; SIFMA 
Letter at 7; Tower Letter at 5.
    \238\ See SIFMA Letter at 7.
    \239\ Id.
    \240\ See Fidelity Letter at 4.
    \241\ Id.
    \242\ See FINRA Letter at 9.
    \243\ Id.
---------------------------------------------------------------------------

    In response to comments questioning the justification for the 
proposed 75%-25% allocation,\244\ the Operating Committee states that 
this allocation ``continues to be an equitable allocation of reasonable 
CAT fees between Industry Members and Participants that balances the 
costs paid by each CAT Reporter and the regulatory benefits each 
receives.'' \245\ The Operating Committee reiterates the arguments it 
made in support of the allocation from the Proposed Amendment.\246\
---------------------------------------------------------------------------

    \244\ See Data Boiler Letter at 7; FIA PTG May 12th Letter at 4; 
Fidelity Letter at 2-4; FINRA Letter at 5; Istra Letter at 3; MMI 
Letter at 4; NYSE Letter at 2; Parallax Letter at 2; SIFMA Letter at 
5-8; STA Letter at 4; Tower Letter at 4; Virtu Letter at 3-4.
    \245\ See CAT Operating Committee July 14th Letter II at 2.
    \246\ Id. at 2-4; Notice, supra note 4 at 21054-21055.
---------------------------------------------------------------------------

    Several commenters state that the Proposed Amendment does not 
consider whether regulatory fees and fines paid by Industry Members 
could offset the costs of CAT.\247\ One commenter asserts that the 
Proposed Funding Model did not consider using exchange regulatory 
revenues or profits as sources of funding and did not explain why fines 
paid by Industry Members for CAT reporting violations could not offset 
the costs of operating the CAT.\248\ In addition, the commenter states 
that the Proposed Funding Model did not analyze whether FINRA's Trading 
Activity Fee (``TAF'') could offset the costs of CAT when OATS is 
retired, or whether FINRA could reduce the TAF rate.\249\ The commenter 
said that inclusion of this analysis would reveal that the Industry 
Allocation is not an equitable allocation of reasonable fees.\250\ 
Another commenter argues that Industry Members pay membership fees, 
registration and licensing fees, and regulatory fees to Participants, 
yet the Proposed Funding Model did not address how these fees are 
allocated and why Industry Members must be responsible for a new 
funding requirement.\251\ One commenter believes that revenues from 
fines should be allocated to the Company's operating reserve in order 
to decrease CAT costs.\252\
---------------------------------------------------------------------------

    \247\ See Tower Letter at 5; SIFMA Letter at 7; Virtu Letter at 
3; FIA PTG May 12th Letter at 5; Parallax Letter at 4. See also Data 
Boiler Letter at 7 (suggesting that fines and settlements should 
fund the CAT).
    \248\ See SIFMA Letter at 7. See also MMI Letter at 5-6 (stating 
that information is needed concerning any potential cost-savings to 
FINRA from OATS retirement that could offset the cost of running the 
CAT, as well as a proposed TAF increase in 2022); Virtu Letter at 4 
(stating that the Proposed Amendment should have analyzed whether 
FINRA's TAF could offset CAT costs after OATS has been retired).
    \249\ See SIFMA Letter at 7.
    \250\ Id.
    \251\ See Virtu Letter at 3.
    \252\ See FIA PTG May 12th Letter at 5.
---------------------------------------------------------------------------

    In response to comments suggesting that regulatory fines and cost 
savings due to the retirement of OATS should be used to decrease CAT 
costs,\253\ the Operating Committee states that it will not reduce CAT 
fees based on the ancillary effects of the CAT.\254\ The Operating 
Committee explains that the proposed CAT fees account for the costs to 
create, implement and maintain the CAT, not other aspects of the 
Participants' regulatory operations.\255\
---------------------------------------------------------------------------

    \253\ Id.; MMI Letter at 5-6; SIFMA Letter at 7; Tower Letter at 
5; Virtu Letter at 4.
    \254\ See CAT Operating Committee July 14th Letter I at 6.
    \255\ Id.
---------------------------------------------------------------------------

    Finally, one commenter argues that the elimination of comparability 
as a funding principle removes support for the proposed cost 
allocation.\256\ The commenter explains that comparability was key to 
the decision to propose the 75%-25% allocation to Industry Members and 
Participants when the Participants previously proposed CAT fees in 
2017.\257\ The commenter explains that the Participants removed 
comparability from the funding model because the Proposed Funding Model 
no longer assesses fees through tiers.\258\ The commenter states, ``if 
the principle driving the change to a no-tier approach is to assess 
fees more transparently on CAT Reporters in direct relation to the 
costs that each creates for the CAT with its reporting activity, the 
Proposed Funding Model fails to apply this principle consistently.'' 
\259\ The commenter adds that the Proposed Amendment does not discuss 
the impact of the removal of the tiers and the comparability principle 
on the funding model.\260\
---------------------------------------------------------------------------

    \256\ See FINRA Letter at 2-4.
    \257\ On May 9, 2017, the Operating Committee for the Company 
filed proposed Amendment No. 2 to the CAT NMS Plan to establish the 
CAT fees to be paid by the Participants. See Letter from Michael 
Simon, CAT NMS Plan Operating Committee Chair, to Brent J. Fields, 
Secretary, Commission, dated May 9, 2017. See also Securities 
Exchange Act Release No. 80930 (June 14, 2017), 82 FR 28180 (June 
20, 2017). The Commission issued an order of summary abrogation of 
Amendment No. 2 on July 21, 2017. See Securities Exchange Act 
Release No. 81189 (July 21, 2017), 82 FR 35005 (July 27, 2017). The 
Participants subsequently filed proposed Amendment No. 3 to the CAT 
NMS Plan on October 30, 2017 to establish the Participant CAT fees. 
See Letter from Michael Simon, CAT NMS Plan Operating Committee 
Chair, to Brent J. Fields, Secretary, Commission, dated October 30, 
2017. On December 11, 2017, the Operating Committee filed proposed 
Amendment No. 4 to the CAT NMS Plan, which replaced and superseded 
Amendment No. 3 in its entirety. See Letter from Michael Simon, CAT 
NMS Plan Operating Committee Chair, to Brent J. Fields, Secretary, 
Commission, dated December 11, 2017. See also Securities Exchange 
Act Release No. 82451 (January 5, 2018), 83 FR 1399 (January 11, 
2018). The Participants withdrew Amendment No. 4 to the CAT NMS Plan 
on January 11, 2018. See Letter from Michael Simon, CAT NMS Plan 
Operating Committee Chair, to Brent J. Fields, Secretary, 
Commission, dated January 10, 2018. See also Securities Exchange Act 
Release No. 82892 (March 16, 2018), 83 FR 12633 (March 22, 2018).
    \258\ See FINRA Letter at 4.
    \259\ Id.
    \260\ Id. at 7, n.17.
---------------------------------------------------------------------------

    In response to the comment,\261\ the Operating Committee explains 
that the comparability provision was used to determine fee tiers. Since 
a tiered fee

[[Page 40126]]

structure would not be used under the Proposed Funding Model, the 
Operating Committee believes it is appropriate to delete the 
comparability provision as it is no longer relevant.\262\
---------------------------------------------------------------------------

    \261\ Id. at 2-4.
    \262\ See CAT Operating Committee July 14th Letter II at 4.
---------------------------------------------------------------------------

Allocation of Costs Between Equities and Options Participants

    Two commenters argue that the Proposed Amendment failed to justify 
the proposed 60%-40% allocation of costs between Equities and Options 
Participants.\263\ Both commenters believe the Proposed Amendment lacks 
justification to support the allocation.\264\ One commenter notes that 
the Participants previously stated that message traffic is a key cost 
driver of the CAT.\265\ The commenter attests that the Proposed Funding 
Model would assess Options Participants, which generate significantly 
more message traffic than Equities Participants, a lesser amount of the 
total CAT costs than Equities Participants.\266\ This commenter 
believes the result is inconsistent with the CAT's cost alignment 
principles \267\ and that the Operating Committee does not explain how 
the result is consistent with the funding principles or the Exchange 
Act.\268\ The other commenter believes the allocation is arbitrary and 
unfairly discriminatory.\269\ The commenter opines that the explanation 
provided by the Participants--that the allocation was ``subject to 
negotiations among the Participants''--is not a basis for approval 
under the Exchange Act, and notes that the majority of votes on the 
Operating Committee are held by Participants that operate options 
exchanges.\270\
---------------------------------------------------------------------------

    \263\ See LTSE Letter at 5; FINRA Letter at 6. See also NYSE 
Letter at 2 (describing the proposed allocation as part of ``an 
incomprehensible, distorted program''); MMI Letter at 5 (requesting 
further transparency and discussion on cost allocation methodology 
differences between Participants and Industry Members).
    \264\ See LTSE Letter at 5; FINRA Letter at 6.
    \265\ See FINRA Letter at 6.
    \266\ Id.
    \267\ See Section 11.2(a) and Section 11.2(b) of the CAT NMS 
Plan.
    \268\ See FINRA Letter at 6.
    \269\ See LTSE Letter at 5.
    \270\ Id.
---------------------------------------------------------------------------

    In response to the comments,\271\ the Operating Committee states 
that the proposed 60%-40% allocation of costs between Equities 
Participants and Options Participants is an appropriate allocation that 
is consistent with the CAT NMS Plan, which contemplates allocating 
Participant CAT fees based on activity in options and equities, and 
explains that the allocation was the subject of negotiations among the 
Participants.\272\
---------------------------------------------------------------------------

    \271\ See FINRA Letter at 6; LTSE Letter at 5; MMI Letter at 5; 
NYSE Letter at 2.
    \272\ See CAT Operating Committee July 14th Letter II at 13-14.
---------------------------------------------------------------------------

Use of Message Traffic for Industry Members

    Several commenters object to the use of message traffic as the 
basis of Industry Member CAT fees.\273\ One commenter believes that 
message traffic is not an appropriate measure for allocating fees to 
Industry Members.\274\ The commenter notes that the Participants 
``control how message traffic is defined, how message traffic is 
processed, and whether steps can be taken to reduce message traffic.'' 
\275\ The commenter argues that charging only Industry Members based on 
message traffic is not a fair allocation of reasonable fees because it 
creates no incentive for the Participants to control CAT message 
traffic and CAT costs.\276\ The commenter believes the proliferation of 
exchanges has resulted in higher CAT message traffic, and thus higher 
costs, but notes that this is not analyzed in the funding model.\277\ 
Another commenter suggests that additional data is needed to support 
the apportionment of CAT costs according to message count.\278\
---------------------------------------------------------------------------

    \273\ See SIFMA Letter at 8-10; Istra Letter at 3, 5; Virtu 
Letter at 5; SSGA Letter at 2; Data Boiler Letter at 7. See also 
NYSE Letter at 1, 3 (recommending a cost allocation framework based 
on executed share volume) and STA Letter at 4 (agreeing with the 
suggestion to use executed share volume); Fidelity Letter at 4 
(stating that the Proposed Amendment has not explained why Industry 
Members must pay CAT fees based on message traffic while 
Participants will pay based on market share).
    \274\ See SIFMA Letter at 8-9.
    \275\ Id. at 9.
    \276\ Id.
    \277\ Id.
    \278\ See MMI Letter at 4.
---------------------------------------------------------------------------

    One commenter notes that the elimination of comparability as a 
funding principle removes support for the proposed requirement to base 
Industry Members CAT fees on message traffic and Participant CAT fees 
on market share.\279\ The commenter explains that comparability was key 
to the decision to propose message traffic as the basis of Industry 
Member CAT fees and market share as the basis of Execution Venue CAT 
fees when the Participants previously proposed CAT fees in 2017.\280\
---------------------------------------------------------------------------

    \279\ See FINRA Letter at 3-4.
    \280\ See supra note 257.
---------------------------------------------------------------------------

    Two commenters believe that the Proposed Funding Model needs to 
examine the impact of options quoting activity on CAT.\281\ One 
commenter states that Options Market Maker quoting comprises the ``vast 
majority'' of CAT messaging and that the design of the CAT should be 
reevaluated in case CAT is being ``weighed down by options activity 
with little impact on market quality and traded volume.'' \282\ The 
other commenter states that the Proposed Funding Model lacks an 
analysis of the message traffic and costs generated by Options Market 
Makers that are required by SRO rules to provide quotes in over a 
million options series, even those that do not trade.\283\
---------------------------------------------------------------------------

    \281\ See Istra Letter at 2; SIFMA Letter at 9.
    \282\ See Istra Letter at 2.
    \283\ See SIFMA Letter at 9.
---------------------------------------------------------------------------

    In response to comments questioning the use of message traffic as a 
basis of Industry Member CAT fees,\284\ the Operating Committee states 
that ``the use of message traffic for allocating CAT costs among 
Industry Members is consistent with the CAT NMS Plan as approved by the 
Commission, and the proposal did not seek to change the use of message 
traffic for this purpose in the Proposed Funding Model.'' \285\ The 
Operating Committee notes that it explored allocating the Industry 
Member Allocation based on revenue related to activities in Eligible 
Securities, but decided it would be difficult to determine the types of 
Industry Member revenue to include in the calculation of a CAT fee 
using this approach.\286\
---------------------------------------------------------------------------

    \284\ See Istra Letter at 4-5; MMI Letter at 4; SIFMA Letter at 
8-9.
    \285\ See CAT Operating Committee July 14th Letter II at 6.
    \286\ Id.
---------------------------------------------------------------------------

    One commenter suggests that the Reportable Events that will 
constitute message traffic be defined in the CAT NMS Plan, rather than 
in the IM Reporting Tech Specs, so that any changes to the Reportable 
Events that would be defined as message traffic would be subject to the 
notice and comment process.\287\ In response to the comment,\288\ the 
Operating Committee states that ``delineating the method for reporting 
Reportable Events used in the message traffic count in the Technical 
Specifications, rather than the CAT NMS Plan, is appropriate because 
the technical approach to reporting specific Reportable Events may vary 
over time.'' \289\
---------------------------------------------------------------------------

    \287\ See Fidelity Letter at 2, 3.
    \288\ Id.
    \289\ See CAT Operating Committee July 14th Letter II at 6.
---------------------------------------------------------------------------

    Commenters also believe that the use of message traffic as a basis 
of Industry Member CAT fees could affect market participant behavior 
with harmful consequences to the markets.\290\ Two

[[Page 40127]]

commenters believe the Participants have not analyzed the impact of the 
proposed approach on the markets.\291\ One commenter states that the 
Proposed Funding Model does not address whether market makers would 
reduce their quoting activity in order to reduce their CAT fees, even 
with the proposed market maker discounts.\292\ The other commenter 
believes that such a reduction in message traffic could impact 
liquidity.\293\
---------------------------------------------------------------------------

    \290\ See SIFMA Letter at 9; Virtu Letter at 5; Istra Letter at 
5; SSGA Letter at 2.
    \291\ See SIFMA Letter at 9; Virtu Letter at 5.
    \292\ See SIFMA Letter at 9.
    \293\ See Virtu Letter at 5.
---------------------------------------------------------------------------

    One commenter believes that using message traffic as the basis of 
Industry Member CAT fees will hurt the provision of liquidity and harm 
market quality.\294\ The commenter explains, ``[a] message that becomes 
displayed on an exchange has obvious value to the entire market and not 
only to the broker (or its customer) providing that liquidity. Taxing 
the message will naturally discourage its provision.'' \295\ The 
commenter emphasizes the benefits of displayed quoting on the markets 
and the negative consequences of the potential reduction in this 
activity that could result from the proposed approach.\296\
---------------------------------------------------------------------------

    \294\ See Istra Letter at 5.
    \295\ Id.
    \296\ Id.
---------------------------------------------------------------------------

    One commenter discusses the potential negative impact on ETFs 
caused by the use of message traffic as the basis for Industry Member 
CAT fees.\297\ The commenter believes that the proposed approach would 
result in a reduction in quoting to minimize CAT fees.\298\ The 
commenter states that ETF market making activity is message-intensive 
and any changes in behavior caused by the proposed approach could 
``interfere with the arbitrage mechanism and negate the work by 
Industry Members and exchanges to promote tighter bid-ask spreads, 
deeper markets and greater participation among liquidity providers.'' 
\299\
---------------------------------------------------------------------------

    \297\ See SSGA Letter at 2.
    \298\ Id.
    \299\ Id.
---------------------------------------------------------------------------

    In response to comments questioning the effects of the use of 
message traffic to calculate fees on the markets,\300\ the Operating 
Committee states that its proposed market maker discounts and the 
proposed Maximum Industry Member CAT Fee are designed to address 
potential disincentives. Additionally, the Operating Committee states 
that the market maker discounts ``recognize the value of the market 
making activity to the market as a whole.'' \301\
---------------------------------------------------------------------------

    \300\ See Istra Letter at -5; MMI Letter at 4; SIFMA Letter at 
9; SSGA Letter at 2; Tower Letter at 1; Virtu Letter at 5.
    \301\ See CAT Operating Committee July 14th Letter II at 7.
---------------------------------------------------------------------------

Use of Market Share for Participants

    Several commenters believe that Participants should be assessed 
fees based on message traffic rather than market share.\302\ The 
commenters note that the primary driver of CAT costs is the processing 
and storage of message traffic; therefore, Participants should be 
assessed CAT fees based on message traffic.\303\
---------------------------------------------------------------------------

    \302\ See FIA PTG May 12th Letter at 3; LTSE Letter at 2-3; 
FINRA Letter at 6-7, 9.
    \303\ See FIA PTG May 12th Letter at 3; LTSE Letter at 2; FINRA 
Letter at 6-7, 9.
---------------------------------------------------------------------------

    One commenter believes that using market share to determine 
Participant CAT fees ``gives a free pass to Plan Participants who 
generate high levels of message traffic but have very little market 
share.'' \304\ This commenter believes that using message traffic as 
the basis of Industry Member CAT fees and market share as the basis of 
Participant CAT fees is inherently discriminatory, maximizes Industry 
Member costs and minimizes Participant costs, and appears to result 
from Participant conflicts of interest and a lack of industry input 
until the funding model.\305\ Another commenter believes that using 
message traffic as the basis of Industry Member CAT fees and market 
share as the basis of Participant CAT fees is discriminatory and 
unsupportable.\306\ One commenter believes the Proposed Amendment fails 
to explain why Industry Members will be assessed fees based on message 
traffic while Participants will be assessed fees based on market 
share.\307\ Two commenters believe that the Participants will have no 
incentives to limit message traffic to lower costs if they are not 
being charged CAT fees based on message traffic.\308\
---------------------------------------------------------------------------

    \304\ See FIA PTG May 12th Letter at 3. See also SIFMA Letter at 
9 (stating that message traffic is a key driver of CAT costs and 
that the Participants generate a significant amount of message 
traffic, yet the Participants propose to base their own CAT fees on 
market share). See also Parallax Letter at 3 (recommending an 
analysis of the amount of message traffic that is driven by the 
Participants, such as market maker quoting).
    \305\ See FIA PTG May 12th Letter at 3.
    \306\ See IMC Letter at 2.
    \307\ See Fidelity Letter at 4. See also LTSE Letter at 2-3 
(stating that the Participants have provided no metrics to support 
their rationale that message traffic is not an appropriate basis for 
Participant CAT fees because their message traffic is derivative of 
quotes and orders received from Industry Members that the 
Participants are required to display) and NYSE Letter at 2 (stating 
that the Proposed Amendment does not justify why some costs should 
be split by message traffic and other costs should be split by 
market share).
    \308\ See Virtu Letter at 5; LTSE Letter at 3.
---------------------------------------------------------------------------

    Another commenter, FINRA, believes that requiring market share to 
be the basis of Participant costs is inconsistent with CAT cost 
alignment principles \309\ because message traffic is the key driver of 
costs, not market share.\310\ The commenter notes that if the 
Participants believe FINRA's CAT fee would be too low based on its 
message traffic, FINRA would consider paying a more appropriate amount 
or an allocation based on a combination of message traffic and market 
share.\311\
---------------------------------------------------------------------------

    \309\ See supra note 267.
    \310\ See FINRA Letter at 6.
    \311\ Id. at 9.
---------------------------------------------------------------------------

    This commenter also objects to the use of market share in 
determining its CAT fees.\312\ The commenter states that it would be 
responsible for 20% of the Equities Participant Allocation even though 
it generates less than 1% of equities message traffic reported to the 
CAT.\313\ The commenter explains that its market share would be based 
on trade reporting volume reported through its facilities, which is 
also reported by Industry Members.\314\ The commenter asks how this is 
consistent with the Operating Committee's rationale for the use of 
market share to determine Participant CAT fees--that message traffic is 
not an appropriate basis for Participants because their message traffic 
is derivative of Industry Member reporting activity.\315\ In addition, 
the commenter states that the Operating Committee justifies the use of 
market share for Participants because their business models are focused 
on executions; however, the commenter notes that ``given FINRA's unique 
role, trade volume is reported through FINRA for regulatory purposes, 
not to serve FINRA's business purposes.'' \316\ The commenter adds that 
the Operating Committee justifies the use of market share as a basis 
for FINRA's CAT fees as FINRA would be one of the largest regulatory 
users of the CAT.\317\ The commenter asks ``why regulatory usage is 
offered only to justify FINRA's allocation of the proposed fee that is 
based on unrelated criteria (market share), particularly when all 
Participants may use CAT data for regulatory purposes.'' \318\ The 
commenter argues that the Operating Committee has not analyzed the 
costs of regulatory usage, and states that if a

[[Page 40128]]

regulatory usage fee is appropriate, it should apply to all 
Participants.\319\
---------------------------------------------------------------------------

    \312\ Id. at 7-9.
    \313\ Id. at 8.
    \314\ Id. at 7.
    \315\ Id. at 7.
    \316\ See FINRA Letter at 7-8.
    \317\ Id. at 8.
    \318\ Id.
    \319\ Id. at 8-9.
---------------------------------------------------------------------------

    In response to comments questioning the use of market share to 
calculate Participant fees,\320\ the Operating Committee states that 
the CAT NMS Plan contemplates that Participants pay a CAT fee that is 
based on market share. After considering alternatives to the use of 
market share, the Operating Committee concluded that market share would 
equitably allocate CAT fees among Participants. The Operating Committee 
reiterates arguments it made in support of the use of market share in 
the Proposed Amendment.\321\
---------------------------------------------------------------------------

    \320\ See FIA PTG May 12th Letter at 3; Fidelity Letter at 4; 
FINRA Letter at 6-7; IMC Letter at 2; LTSE Letter at 2-3; MMI Letter 
at 5; NYSE Letter at 2; SIFMA Letter at 8-9.
    \321\ See CAT Operating Committee July 14th Letter II at 12-13; 
Notice, supra note 4, at 21060.
---------------------------------------------------------------------------

Maximum Equities Participant Fee

    Two commenters object to the Maximum Equities Participant Fee 
because they believe that the sole Participant subject to the fee--
FINRA--would be unfairly afforded preferential treatment.\322\ One 
commenter believes that FINRA should receive a higher portion of CAT 
costs than Participants that lack a surveillance business because FINRA 
can capitalize off of the predecessor plan processor's development work 
and its technology will benefit from CAT.\323\ The commenter believes 
that FINRA should not be permitted re-allocation of its CAT fee under 
the Maximum Equities Participant Fee.\324\ The commenter also states, 
``[a]lthough we acknowledge that the nature of OTC trading in penny 
level may inherently be different from the proposed message traffic 
measurement use in Equity/Listed Option Group Split, similar arguments 
may apply to thinly traded securities, ESG stocks, etc., which SEC rule 
should avoid `craft-out.''' \325\
---------------------------------------------------------------------------

    \322\ See Data Boiler Letter at 8-9; LTSE Letter at 5. See also 
NYSE Letter at 2 (noting the added complexity of the ``bespoke fee 
structure for FINRA'').
    \323\ See Data Boiler Letter at 8-9.
    \324\ Id. at 9.
    \325\ Id. at 8.
---------------------------------------------------------------------------

    In response to the comment noting the nature of trading in OTC 
Equity Securities,\326\ the Operating Committee states that it proposes 
to exclude OTC Equity Securities share volume from the calculation of 
market share for national securities exchanges. The Operating Committee 
reiterates the arguments it made in support of the proposed exclusion 
of OTC Equity Securities share volume in the Proposed Amendment.\327\
---------------------------------------------------------------------------

    \326\ Id.
    \327\ See CAT Operating Committee July 14th Letter II at 14; 
Notice, supra note 4, at 21061.
---------------------------------------------------------------------------

    The other commenter believes that the Maximum Equities Participant 
Fee market share caps and re-allocation are arbitrary and unfairly 
discriminatory.\328\ The commenter believes that the proposal lacks 
justification for requiring other Equities Participants to be allocated 
FINRA's market share when FINRA's activity does not occur on their 
markets.\329\ The commenter notes, ``[t]he stated rationale that this 
is necessary for the FINRA fees to be `fair and reasonable' is 
subjective, unsupported by any data, and further highlights the 
shortcomings of a fee model based on market share.'' \330\
---------------------------------------------------------------------------

    \328\ See LTSE Letter at 5.
    \329\ Id.
    \330\ Id.
---------------------------------------------------------------------------

    One commenter, FINRA, also objects to the Maximum Equities 
Participant Fee because it is based on the use of market share for 
calculating FINRA's CAT fees, which FINRA believes is inconsistent with 
the funding principles of the CAT NMS Plan and ill-suited to FINRA's 
unique model.\331\
---------------------------------------------------------------------------

    \331\ See supra text accompanying notes 312-319.
---------------------------------------------------------------------------

    In response to comments received on the Maximum Equities 
Participant Fee,\332\ the Operating Committee reiterates the arguments 
it made in support of the proposed Maximum Equities Participant Fee in 
the Proposed Amendment.\333\
---------------------------------------------------------------------------

    \332\ See Data Boiler Letter at 9; FINRA Letter at 7-9; LTSE 
Letter at 5; NYSE Letter at 2.
    \333\ See CAT Operating Committee July 14th Letter II at 15; 
Notice, supra note 4, at 21062.
---------------------------------------------------------------------------

Minimum Participant Fee

    One commenter objects to the proposed Minimum Participant Fee as 
inconsistent with the notion that market share is a fair method of 
allocation,\334\ and as arbitrary and unfairly discriminatory.\335\ The 
commenter states that this fee would be paid by every Participant, 
regardless of its market share, and notes that this fee can 
significantly increase even if a Participant itself is not creating 
increased costs to the CAT.\336\ The commenter questions why some 
Participants would incur a higher Minimum Participant Fee when only 
certain Participants engage in activity that results in increased CAT 
message traffic.\337\ The commenter also notes that a Participant that 
operates both an options and equities exchange would be assessed only 
one Minimum Participant Fee.\338\
---------------------------------------------------------------------------

    \334\ See LTSE Letter at 4.
    \335\ See LTSE Letter at 4. See also NYSE Letter at 2 (noting 
the added complexity of the Minimum Participant Fee).
    \336\ See LTSE Letter at 4.
    \337\ Id. at 4-5.
    \338\ Id. at 4, n.9.
---------------------------------------------------------------------------

    In response to the comments on the Minimum Participant Fee,\339\ 
the Operating Committee reiterates the arguments it made in support of 
the proposed Minimum Participant Fee in the Proposed Amendment.\340\
---------------------------------------------------------------------------

    \339\ Id. at 4-5; NYSE Letter at 2.
    \340\ See CAT Operating Committee July 14th Letter II at 15; 
Notice, supra note 4, at 21060.
---------------------------------------------------------------------------

Maximum Industry Member CAT Fee

    Several commenters express concern about the Maximum Industry 
Member CAT Fee.\341\ One commenter believes the Maximum Industry Member 
CAT Fee ``exacerbates inequalities'' \342\ and believes that small 
firms should not be responsible for subsidizing the CAT fees for the 
top 36 firms that generate the vast majority of message traffic.\343\ 
Similarly, another commenter believes that a lack of transparency into 
the re-allocation of CAT fees for Industry Members in excess of the 
Maximum Industry Member CAT Fee adds complexity and makes it difficult 
for Industry Members to calculate their costs under the Proposed 
Funding Model.\344\ This commenter also believes the cap of 8% of total 
Industry Member CAT message traffic is arbitrary.\345\
---------------------------------------------------------------------------

    \341\ See Data Boiler Letter at 7-8; Tower Letter at 6; FINRA 
Letter at 5-6; MMI Letter at 5; SIFMA Letter at 9.
    \342\ See Data Boiler Letter at 7.
    \343\ Id.
    \344\ See SIFMA Letter at 9.
    \345\ Id.
---------------------------------------------------------------------------

    Another commenter objects to the 8% cap, explaining that the 
proposal has not fully justified the cap, and that it provides large 
brokers an unfair advantage by requiring other Industry Members, 
including their direct competitors, to pay the large brokers' re-
allocation of fees in excess of the Maximum Industry Member CAT 
Fee.\346\ Finally, one commenter believes the Proposed Funding Model 
insufficiently analyzes the ``cross-subsidization that results from the 
proposed minimum and maximum Industry Member fees'' nor does it explain 
the reasoning behind the creation of the Maximum Industry Member CAT 
Fee.\347\
---------------------------------------------------------------------------

    \346\ See Tower Letter at 6.
    \347\ See FINRA Letter at 5.
---------------------------------------------------------------------------

    In response to comments on the Maximum Industry Member CAT 
Fee,\348\ the Operating Committee reiterates the arguments it made in 
support of the proposed Maximum

[[Page 40129]]

Industry CAT Fee in the Proposed Amendment.\349\
---------------------------------------------------------------------------

    \348\ See Data Boiler Letter at 7-8; FINRA Letter at 5-6; MMI 
Letter at 5; SIFMA Letter at 9; Tower Letter at 6.
    \349\ See CAT Operating Committee July 14th Letter II at 12; 
Notice, supra note 4, at 21059.
---------------------------------------------------------------------------

Minimum Industry Member CAT Fee

    Two commenters object to the Minimum Industry Member CAT Fee.\350\ 
One of the commenters believes the Minimum Industry Member CAT Fee 
poses an undue burden on Industry Members and, by charging a ``de 
minimis fee,'' is inconsistent with Section 11.2(d), which requires the 
Operating Committee to provide for ease of billing and other 
administrative functions.\351\
---------------------------------------------------------------------------

    \350\ See Data Boiler Letter at 7; FINRA Letter at 5-6.
    \351\ See Data Boiler Letter at 7.
---------------------------------------------------------------------------

    The other commenter believes the proposal lacks justification for 
the Minimum Industry CAT Fee, explaining that the fee could increase 
for firms with little message traffic due to the redistribution of CAT 
fees in excess of the Maximum Industry Member CAT Fee.\352\ The 
commenter states this result was not discussed in the Proposed Funding 
Model nor was there a discussion of how the result is consistent with 
the CAT funding principles.\353\
---------------------------------------------------------------------------

    \352\ See FINRA Letter at 5-6.
    \353\ See FINRA Letter at 5-6.
---------------------------------------------------------------------------

    In response to the comments,\354\ the Operating Committee 
reiterates the arguments it made in support of the proposed Minimum 
Industry Member CAT Fee in the Proposed Amendment.\355\
---------------------------------------------------------------------------

    \354\ See Data Boiler Letter at 7; FINRA Letter at 5-6.
    \355\ See CAT Operating Committee July 14th Letter II at 7; 
Notice, supra note 4, at 21058-21059.
---------------------------------------------------------------------------

Market Maker Discounts

    Five commenters object to the proposed market maker discounts.\356\ 
One commenter objects to the market maker discounts due to what it 
deems the improper discounting of Equity Market Maker message traffic 
and the preferential treatment of Options Market Makers at the expense 
of equities Industry Members.\357\ The commenter criticizes the trade-
to-quote ratio that is the basis of the proposed market maker 
discounts, explaining that it ``ignores the realities of the market.'' 
\358\ The commenter suggests only including trades executed on-exchange 
and not off-exchange in the ratio.\359\ Additionally, the commenter 
objects to the use of the SIP best bid and offer information in 
deriving the trade-to-quote ratio, explaining that this method 
undercounts the ``activity and value contribution of equities market 
makers and further underestimates any market maker discount.'' \360\ 
The commenter also argues that, after the Options Market Maker 
discount, equities Industry Members would be required to pay 95% of the 
CAT cost when only responsible for 12% of the message traffic, a 
``grossly unfair cross-subsidy.'' \361\ The commenter states that at 
least 40% of Industry Member costs should be borne by options Industry 
Members if message traffic is the key driver of CAT costs.\362\ Another 
commenter states that the ``massive discounts'' demonstrate that the 
Participants ``have not found a way to perform the core functions 
needed for market surveillance, without the cost of it putting at risk 
an entire segment of the industry.'' \363\
---------------------------------------------------------------------------

    \356\ See Data Boiler Letter at 7, 8, 9; SIFMA Letter at 9; 
Tower Letter at 5-6; Istra Letter at 3-5; Parallax Letter at 3.
    \357\ See Istra Letter at 3-5.
    \358\ Id. at 4-5. See also Parallax Letter at 3 (stating that 
the trade-to-quote ratio needs further analysis).
    \359\ See Istra Letter at 4.
    \360\ Id. at 5.
    \361\ Id. at 4.
    \362\ Id.
    \363\ See Parallax Letter at 3. This commenter also suggests 
that there should be a process to confirm that Industry Members 
accurately identify themselves as market makers to receive the 
proposed market maker discounts, and penalties for those who 
wrongfully identify themselves or their activities to receive a 
discount. Id.
---------------------------------------------------------------------------

    Similarly, another commenter states that 89% of all Industry Member 
CAT Reportable Events comes from Options Market Makers, but the 
proposed Options Market Maker discount reduces 99% of the billable 
events for Options Market Makers, with the result being 94% of Industry 
Members' share allocated to equities non-market makers.\364\ The 
commenter urges the Participants to justify this shift of costs to 
Industry Members that are not Options Market Makers and notes that the 
Proposed Amendment has not analyzed the effects of the discounts or has 
demonstrated that the discounts will be effective.\365\ The commenter 
states that the Proposed Amendment is lacking in several other areas 
with respect to these discounts; there is no discussion of: (1) How the 
proposed market maker discount provides a pricing advantage to market 
makers that is unavailable to other market participants; (2) how the 
trade-to-quote ratio is the correct metric to use for determining the 
market maker discounts; (3) how the discount incentivizes market makers 
to quote more without trading more; (4) how/whether the discount 
calculation will change if the trade-to-quote ratio significantly 
changes; and (5) any impacts on liquidity and market participant 
behavior.\366\ The commenter also believes the Proposed Amendment lacks 
a discussion of its potential impact on business lines across the 
industry, such as, for example, its effect on ATSs, which would not be 
considered market makers and thus could incur high costs.\367\ The 
commenter attests that the Proposed Amendment lacks the information 
necessary to assess the effect of the proposed market maker discounts, 
such as the number of transactions resulting from market makers and how 
market-makers transactions should be discounted from the total number 
of transactions using the trade-to-quote ratio.\368\
---------------------------------------------------------------------------

    \364\ See Tower Letter at 6.
    \365\ Id. at 5-6. See also Parallax Letter at 4 (stating that it 
is important to understand the extent to which Industry Members 
would benefit from the discounts).
    \366\ See Tower Letter at 5.
    \367\ Id. at 6.
    \368\ Id. at 3.
---------------------------------------------------------------------------

    In response to the comment on the proposal's potential effects on 
business lines across the industry,\369\ the Operating Committee states 
that it sought to limit any negative effects on certain CAT Reporters 
resulting from the use of message traffic to calculate fees, such as 
through the proposed market maker discounts and the proposed Maximum 
Industry Member CAT Fee.\370\
---------------------------------------------------------------------------

    \369\ Id. at 6.
    \370\ See CAT Operating Committee July 14th Letter II at 7.
---------------------------------------------------------------------------

    One commenter opposes any market maker discounts, but notes that 
smaller market makers that do not pay or receive rebates deserve 
subsidies to encourage their participation.\371\ Another commenter 
believes the impact of market maker discounts, as well as the Maximum 
Industry Member CAT Fee, adds complexity and makes it difficult for 
Industry Members to calculate their costs.\372\ In response to comments 
on the market maker discounts,\373\ the Operating Committee reiterates 
its rationale for proposing the discounts from the Proposed 
Amendment.\374\
---------------------------------------------------------------------------

    \371\ See Data Boiler Letter at 9.
    \372\ See SIFMA Letter at 9.
    \373\ See FIA PTG May 12th Letter at 4; IMC Letter at 2; Data 
Boiler Letter at 7; SIFMA Letter at 9; Istra Letter at 2-4; Parallax 
Letter at 3; Tower Letter at 5-6.
    \374\ See CAT Operating Committee July 14th Letter II at 9; 
Notice, supra note 4, at 21057-21058.
---------------------------------------------------------------------------

    Two commenters endorse the proposed market maker discounts.\375\ 
One commenter believes any funding plan should include these discounts 
and that additional product-specific

[[Page 40130]]

discounts should be considered.\376\ Another commenter believes the 
discounts prevent market makers from incurring ``a disproportionate 
percentage of CAT costs, which could impact their provision of 
liquidity.'' \377\
---------------------------------------------------------------------------

    \375\ See IMC Letter at 2; FIA PTG May 12th Letter at 4.
    \376\ See IMC Letter at 2.
    \377\ See FIA PTG May 12th Letter at 4.
---------------------------------------------------------------------------

    One commenter requests clarification on the proposed market maker 
discounts, specifying ``cost allocation data and projections on market 
maker vs. non-market maker liquidity providers.'' \378\ The commenter 
also asks for further transparency and discussion on the application of 
the discounts on Industry Members with the most message traffic, at the 
expense of other Industry Members.\379\
---------------------------------------------------------------------------

    \378\ See MMI Letter at 5.
    \379\ Id.
---------------------------------------------------------------------------

Proposed Alternative Funding Models

    Several commenters suggest alternatives to the Proposed Funding 
Model.\380\ One commenter believes that fines and settlements should 
fund the CAT and that market participants that pose higher risks should 
pay higher CAT fees due to regulators' ``extra efforts in deciphering 
their complex business activities.'' \381\ The commenter also suggests 
the Suspicious Activity Report (``SAR'') \382\ as a basis for 
determining Industry Member CAT fees, stating that Industry Members 
that underreport on the SAR should have increased fines.\383\ The 
commenter believes that dark pools should pay higher CAT fees than SROs 
because they pose higher potential risks due to lack of transparency 
and ``vulnerability to conflicts of interest,'' \384\ and also notes 
that internalizers or market makers may pose more of a risk than dark 
pools due to greater vulnerability to conflicts of interest.\385\
---------------------------------------------------------------------------

    \380\ See NYSE Letter at 2-5; Data Boiler Letter at 7-8; STA 
Letter at 4; FIA PTG May 12th Letter at 4; Istra Letter at 5-6; IMC 
Letter at 3; MMI Letter at 5.
    \381\ See Data Boiler Letter at 8.
    \382\ 12 CFR 21.11.
    \383\ See Data Boiler Letter at 7-8.
    \384\ Id.
    \385\ Id. In response to this comment, the Operating Committee 
states that the Proposed Funding Model would treat ATSs as Industry 
Members, requiring all Industry Members to pay a fee based on 
message traffic rather than requiring some ATSs to pay a fee based 
on market share and some ATSs to pay a fee based on message traffic, 
and would also address concerns that treating Execution Venue ATSs 
as Participants could create a barrier to entry for smaller ATSs. 
See CAT Operating Committee July 14th Letter II at 7-8.
---------------------------------------------------------------------------

    Other commenters recommend a funding model administered similar to 
the Commission's Section 31 fees.\386\ Two commenters explain that the 
Participants could be assigned all of the CAT costs and then they would 
decide how to reallocate those costs to their market participants, like 
Section 31 fees.\387\ One of the commenters believes that this method 
would incentivize Participants into better managing CAT costs and 
possibly incentivize them into competing over how to allocate costs 
their market participants.\388\ Another commenter also suggests that 
the Commission could instead increase the rate of Section 31 fees to 
fund the CAT.\389\
---------------------------------------------------------------------------

    \386\ See MMI Letter at 5; Istra Letter at 5-6; FIA PTG May 12th 
Letter at 4; IMC Letter at 2-3; STA Letter at 4; NYSE Letter at 2-5.
    \387\ See MMI Letter at 5; FIA PTG May 12th Letter at 4.
    \388\ See FIA PTG May 12th Letter at 4.
    \389\ See MMI Letter at 5.
---------------------------------------------------------------------------

    One commenter believes that a 50%-50% cost allocation among 
Industry Members and Participants would be preferable to the proposed 
75%-25% cost allocation,\390\ but notes a simpler and direct way of 
allocating costs through derived value, which the commenter believes 
would not deter the provision of liquidity.\391\ The commenter suggests 
using a methodology similar to the Section 31 fee or the Section 31 fee 
methodology itself.\392\
---------------------------------------------------------------------------

    \390\ See Istra Letter at 5.
    \391\ Id. at 5-6.
    \392\ Id.
---------------------------------------------------------------------------

    Another commenter, a national securities exchange, provides a 
detailed alternative funding model administered similarly to Section 31 
fees.\393\ According to the alternative model, CAT costs would be 
allocated based on executed share volume, which is already tracked by 
market participants.\394\ A per share or per contract fee would be 
calculated by dividing the annual budget cost base by projected total 
industry volume.\395\ One-third of the fee would be allocated to the 
purchasing broker-dealer, one-third to the selling broker-dealer, and 
one-third to the exchange or trade reporting facility reporting the 
transaction.\396\ The commenter believes that this allocation would 
align funding responsibility with the receipt of economic benefits from 
the marketplace and would result in transparent and predicable CAT 
funding costs.\397\ The commenter notes that OTC equities would be 
treated differently due to their significantly higher share volumes, 
and suggests that they receive a small portion of the CAT budget that 
would be allocated among the buyer, seller and the Over-the-Counter 
Reporting Facility on a per share basis.\398\ The commenter believes 
that requiring all parties active in each transaction to evenly fund 
the CAT would allocate costs transparently, and that billing in 
accordance with Section 31 fee billing processes would be ``an 
efficient method to administer funding program and provide clarity to 
market participants of their trading expenses.'' \399\
---------------------------------------------------------------------------

    \393\ See NYSE Letter at 2-5.
    \394\ Id. at 3.
    \395\ Id.
    \396\ Id.
    \397\ Id.
    \398\ Id.
    \399\ See NYSE Letter at 5.
---------------------------------------------------------------------------

    Two commenters believe the national securities exchange's suggested 
alternative funding model deserves review.\400\ Both commenters support 
the alternative's suggestion to base funding on executed volume rather 
than message traffic via a structure administered like Section 31 fees 
volume rather than message traffic.\401\ However, one commenter 
expresses concern about the alternative's suggested allocation of the 
per share cost, explaining that FINRA's costs would be passed to 
Industry Members through the TAF.\402\ Additionally, one commenter 
warns that this alternative, and the suggestions to use Section 31 fees 
as a model, could result in costs assessed against investors and urges 
the Commission to consider the possibility of increased costs and 
whether investors should be responsible for these costs.\403\
---------------------------------------------------------------------------

    \400\ See IMC Letter at 3; STA Letter at 4.
    \401\ See IMC Letter at 2-3; STA Letter at 4.
    \402\ See STA Letter at 4.
    \403\ See Parallax Letter at 4-5.
---------------------------------------------------------------------------

V. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Amendment

    The Commission is instituting proceedings pursuant to Rule 
608(b)(2)(i) of Regulation NMS,\404\ and Rules 700 and 701 of the 
Commission's Rules of Practice,\405\ to determine whether to disapprove 
the Proposed Amendment or to approve the Proposed Amendment with any 
changes or subject to any conditions the Commission deems necessary or 
appropriate after considering public comment. Institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, the 
Commission seeks and encourages interested persons to provide 
additional comment on the Proposed Amendment to inform the Commission's 
analysis.
---------------------------------------------------------------------------

    \404\ 17 CFR 242.608.
    \405\ 17 CFR 201.700; 17 CFR 201.701.
---------------------------------------------------------------------------

    Rule 608(b)(2) of Regulation NMS provides that the Commission 
``shall approve a national market system plan or proposed amendment to 
an effective

[[Page 40131]]

national market system plan, with such changes or subject to such 
conditions as the Commission may deem necessary or appropriate, if it 
finds that such plan or amendment is necessary or appropriate in the 
public interest, for the protection of investors and the maintenance of 
fair and orderly markets, to remove impediments to, and perfect the 
mechanisms of, a national market system, or otherwise in furtherance of 
the purposes of the Exchange Act.'' \406\ Rule 608(b)(2) further 
provides that the Commission shall disapprove a national market system 
plan or proposed amendment if it does not make such a finding.\407\ In 
the Notice, the Commission sought comment on the Proposed Amendment, 
including whether the Proposed Amendment is consistent with the 
Exchange Act.\408\ In this order, pursuant to Rule 608(b)(2)(i) of 
Regulation NMS,\409\ the Commission is providing notice of the grounds 
for disapproval under consideration:
---------------------------------------------------------------------------

    \406\ 17 CFR 242.608(b)(2).
    \407\ Id.
    \408\ See Notice, supra note 4.
    \409\ 17 CFR 242.608(b)(2)(i).
---------------------------------------------------------------------------

     Whether, consistent with Rule 608 of Regulation NMS, the 
Participants have demonstrated how the Proposed Amendment is necessary 
or appropriate in the public interest, for the protection of investors 
and the maintenance of fair and orderly markets, to remove impediments 
to, and perfect the mechanisms of, a national market system, or 
otherwise in furtherance of the purposes of the Exchange Act; \410\
---------------------------------------------------------------------------

    \410\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

     Whether the Participants have demonstrated how the 
Proposed Amendment is consistent with Section 6(b)(4) \411\ and Section 
15A(b)(5),\412\ of the Exchange Act, which require that the rules of a 
national securities exchange ``provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and issuers 
and other persons using its facilities'' and that the rules of a 
national securities association ``provide for the equitable allocation 
of reasonable dues, fees, and other charges among members and issuers 
and other persons using any facility or system which the association 
operates or controls;''
---------------------------------------------------------------------------

    \411\ 15 U.S.C. 78f(b)(4).
    \412\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------

     Whether the Participants have demonstrated how the 
Proposed Amendment is consistent with Section 6(b)(5) \413\ and Section 
15A(b)(6),\414\ of the Exchange Act, which require that the rules of a 
national securities exchange or national securities association 
``promote just and equitable principles of trade . . . protect 
investors and the public interest; and [to be] not designed to permit 
unfair discrimination between customers, issuers, brokers, or 
dealers;''
---------------------------------------------------------------------------

    \413\ 15 U.S.C. 78f(b)(5).
    \414\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

     Whether the Participants have demonstrated how the 
Proposed Amendment is consistent with Section 6(b)(8) \415\ and Section 
15A(b)(9) \416\ of the Exchange Act, which require that the rules of a 
national securities exchange or national securities association ``do 
not impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of [the Exchange Act];''
---------------------------------------------------------------------------

    \415\ 15 U.S.C. 78f(b)(8).
    \416\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------

     Whether the Participants have demonstrated how the 
Proposed Amendment is consistent with the funding principles of the CAT 
NMS Plan, which state that the Operating Committee shall seek, among 
other things, ``to create transparent, predictable revenue streams for 
the Company that are aligned with the anticipated costs to build, 
operate and administer the CAT and the other costs of the Company,'' 
\417\ ``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 . . . distinctions in the securities trading 
operations of Participants and Industry Members and their relative 
impact upon the Company resources and operations,'' \418\ ``to provide 
for ease of billing and other administrative functions,'' \419\ and 
``to avoid any disincentives such as placing an inappropriate burden on 
competition and a reduction in market quality;'' \420\
---------------------------------------------------------------------------

    \417\ Section 11.2(a) of the CAT NMS Plan.
    \418\ Section 11.2(b) of the CAT NMS Plan.
    \419\ Section 11.2(d) of the CAT NMS Plan.
    \420\ Section 11.2(e) of the CAT NMS Plan.
---------------------------------------------------------------------------

     Whether, and if so how, the Proposed Amendment would 
affect efficiency, competition or capital formation; and
     Whether modifications to the Proposed Amendment, or 
conditions to its approval, would be necessary or appropriate in the 
public interest, for the protection of investors and the maintenance of 
fair and orderly markets, to remove impediments to, and perfect the 
mechanisms of, a national market system, or otherwise in furtherance of 
the purposes of the Exchange Act.\421\
---------------------------------------------------------------------------

    \421\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

    As discussed in Section IV., above, the Participants made various 
arguments in support of the Proposed Amendment and the Commission 
received comment letters that expressed concerns about the Proposed 
Amendment, including that the Participants did not provide sufficient 
information to establish that the Proposed Amendment is consistent with 
the Exchange Act and the rules thereunder.
    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a NMS plan filing is consistent with the Exchange Act 
and the rules and regulations issued thereunder . . . is on the plan 
participants that filed the NMS plan filing.'' \422\ The description of 
the NMS plan filing, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding.\423\ Any failure of the plan participants that filed the NMS 
plan filing to provide such detail and specificity may result in the 
Commission not having a sufficient basis to make an affirmative finding 
that the NMS plan filing is consistent with the Exchange Act and the 
applicable rules and regulations thereunder.\424\
---------------------------------------------------------------------------

    \422\ 17 CFR 201.701(b)(3)(ii).
    \423\ Id.
    \424\ Id.
---------------------------------------------------------------------------

VI. Commission's Solicitation of Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the Proposed Amendment. In particular, the Commission invites the 
written views of interested persons concerning whether the Proposed 
Amendment is consistent with Section 11A or any other provision of the 
Exchange Act, or the rules and regulations thereunder. Although there 
do not appear to be any issues relevant to approval or disapproval that 
would be facilitated by an oral presentation of views, data, and 
arguments, the Commission will consider, pursuant to Rule 608(b)(2)(i) 
of Regulation NMS,\425\ any request for an opportunity to make an oral 
presentation.\426\ The Commission asks that commenters address the 
sufficiency and merit of the Participants' statements in support of the 
Proposed Amendment,\427\ in addition to any other comments they

[[Page 40132]]

may wish to submit about the proposed rule changes. In particular, the 
Commission seeks comment on the following:
---------------------------------------------------------------------------

    \425\ 17 CFR 242.608(b)(2)(i).
    \426\ Rule 700(c)(ii) of the Commission's Rules of Practice 
provides that ``[t]he Commission, in its sole discretion, may 
determine whether any issues relevant to approval or disapproval 
would be facilitated by the opportunity for an oral presentation of 
views.'' 17 CFR 201.700(c)(ii).
    \427\ See Notice, supra note 4.
---------------------------------------------------------------------------

A. Requests for Comment on the Proposed Funding Model

    1. Commenters' views on the proposed inclusion of ATSs as Industry 
Members for purposes of allocating CAT costs;
    2. Commenters' views on the exclusion of reported OTC Equity 
Securities share volume from the calculation of market share for 
national securities associations;
    3. Commenters' views on the proposed elimination of tiered fees in 
favor of CAT fees that may vary based on message traffic or market 
share, as applicable;
    4. Commenters' views on the proposed elimination from Section 
11.2(c) of the CAT NMS Plan of the requirement that the fees charged to 
CAT Reporters with the most CAT-related activity be generally 
comparable;
    5. Commenters' views on the proposed Minimum Industry Member CAT 
Fee and the requirement that all Industry Members pay such fee, even if 
they have not yet started reporting to the CAT, and any views on 
whether the Proposed Funding Model has provided sufficient information 
on the operation of the fee and on whether the Proposed Funding Model 
has sufficiently explained the operation of the Minimum Industry Member 
CAT Fee Re-Allocation;
    6. Commenters' views on the proposed Maximum Industry Member CAT 
Fee; any views on whether the Proposed Amendment contains sufficient 
justification for the 8% cap chosen for the fee; and any views on 
whether a maximum fee is consistent with the funding principles 
expressed in the CAT NMS Plan that states that the Operating Committee 
shall seek, among other things, ``to create transparent, predictable 
revenue streams for the Company that are aligned with the anticipated 
costs to build, operate and administer the CAT and the other costs of 
the Company,'' \428\ ``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 . . . distinctions 
in the securities trading operations of Participants and Industry 
Members and their relative impact upon the Company resources and 
operations,'' \429\ and ``to avoid any disincentives such as placing an 
inappropriate burden on competition and a reduction in market 
quality;'' \430\
---------------------------------------------------------------------------

    \428\ Section 11.2(a) of the CAT NMS Plan.
    \429\ Section 11.2(b) of the CAT NMS Plan.
    \430\ Section 11.2(e) of the CAT NMS Plan.
---------------------------------------------------------------------------

    7. Commenters' views on why Industry Member CAT fees should be 
capped; views on how such a cap would benefit or harm efficiency, 
competition, and capital formation; and any views on whether there are 
other benefits or costs of adopting such an approach;
    8. Commenters' views on the proposed Minimum Participant Fee and 
the Maximum Equities Participant Fee, including views on the 
calculation of the proposed fees and any views on whether the proposed 
fees raise any competitive issues among the Participants; and any views 
on whether the proposed fees are consistent with the funding principles 
expressed in the CAT NMS Plan, which state that the Operating Committee 
shall seek, among other things, ``to create transparent, predictable 
revenue streams for the Company that are aligned with the anticipated 
costs to build, operate and administer the CAT and the other costs of 
the Company;'' \431\ ``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 . . . distinctions 
in the securities trading operations of Participants and Industry 
Members and their relative impact upon the Company resources and 
operations;'' \432\ and ``to avoid any disincentives such as placing an 
inappropriate burden on competition and a reduction in market 
quality;'' \433\
---------------------------------------------------------------------------

    \431\ Section 11.2(a) of the CAT NMS Plan.
    \432\ Section 11.2(b) of the CAT NMS Plan.
    \433\ Section 11.2(e) of the CAT NMS Plan.
---------------------------------------------------------------------------

    9. Commenters' views on whether FINRA's CAT fee should be capped; 
any views on how such a cap benefits or harms efficiency, competition, 
and capital formation; and any views on whether there are other 
benefits or costs of adopting such an approach;
    10. Commenters' views on why Participants should be charged the 
Minimum Participant Fee; views on how such a minimum would benefit or 
harm efficiency, competition, and capital formation; and any views on 
whether there are other benefits or costs of adopting such an approach;
    11. Commenters' views on the proposed market maker discounts, any 
views on the potential impact of the discounts on market participant 
behavior, including the provision of liquidity; and any views on 
whether the proposed market maker discounts are consistent with the 
funding principles expressed in the CAT NMS Plan, which state that the 
Operating Committee shall seek, among other things, ``to create 
transparent, predictable revenue streams for the Company that are 
aligned with the anticipated costs to build, operate and administer the 
CAT and the other costs of the Company,'' \434\ ``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 . . . distinctions in the securities trading operations of 
Participants and Industry Members and their relative impact upon the 
Company resources and operations,'' \435\ and ``to avoid any 
disincentives such as placing an inappropriate burden on competition 
and a reduction in market quality;'' \436\
---------------------------------------------------------------------------

    \434\ Section 11.2(a) of the CAT NMS Plan.
    \435\ Section 11.2(b) of the CAT NMS Plan.
    \436\ Section 11.2(e) of the CAT NMS Plan.
---------------------------------------------------------------------------

    12. Commenters' views on how market-making activity should be 
defined for purposes of the proposed market maker discounts; views on 
whether there is activity included in the definition of market making 
that should not be included for purposes of allocation of CAT fees; and 
any views on whether such a discount should apply to market-making 
activities in all types of securities without regard to security 
characteristics;
    13. Commenters' views on whether other Industry Members (including 
those that do not transact in options) would subsidize the activity of 
Options Market Makers under the proposal; any views on whether Section 
6.4(d)(iii) \437\ of the CAT NMS Plan effectively reduces the message 
traffic of Options Market Makers relative to what it would be 
otherwise, and thus ultimately reduce the CAT fees they would be 
assigned under the Participants' proposal; views on how this 
subsidization would benefit or harm efficiency, competition, and 
capital formation; views on whether there are other benefits or costs 
of adopting such an approach; views (in detail) on whether there is an 
alternative approach

[[Page 40133]]

that would be more beneficial to efficiency, competition, or capital 
formation; and any views on whether the discount to fees allocated to 
Industry Members for market making activity described in the 
Participants' proposal provide a similar magnitude of benefit to Equity 
Market Makers;
---------------------------------------------------------------------------

    \437\ Section 6.4(d)(iii) of the CAT NMS Plan states, ``With 
respect to the reporting obligations of an Options Market Maker with 
regard to its quotes in Listed Options, Reportable Events required 
pursuant to Section 6.3(d)(ii) and (iv) shall be reported to the 
Central Repository by an Options Exchange in lieu of the reporting 
of such information by the Options Market Maker. Each Participant 
that is an Options Exchange shall, through its Compliance Rule, 
require its Industry Members that are Options Market Makers to 
report to the Options Exchange the time at which a quote in a Listed 
Option is sent to the Options Exchange (and, if applicable, any 
subsequent quote modifications and/or cancellation time when such 
modification or cancellation is originated by the Options Market 
Maker). Such time information also shall be reported to the Central 
Repository by the Options Exchange in lieu of reporting by the 
Options Market Maker.''
---------------------------------------------------------------------------

B. Requests for Comment on the Proposed Fee Schedule

    1. Commenters' views on the determination to allocate 75% of the 
Total CAT Costs to Industry Members and 25% of the Total CAT Costs to 
Participants; and any views on whether this proposed allocation is 
consistent with the funding principles expressed in the CAT NMS Plan, 
which state that the Operating Committee shall seek, among other 
things, ``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 . . . distinctions in the securities 
trading operations of Participants and Industry Members and their 
relative impact upon the Company resources and operations,'' \438\ and 
``to avoid any disincentives such as placing an inappropriate burden on 
competition and a reduction in market quality;'' \439\
---------------------------------------------------------------------------

    \438\ Section 11.2(b) of the CAT NMS Plan.
    \439\ Section 11.2(e) of the CAT NMS Plan.
---------------------------------------------------------------------------

    2. Commenters' views on the rationale provided that the proposed 
75%-25% allocation ensures that Industry Members with the most message 
traffic pay comparable fees to Participant complexes with the most 
market share, considering the proposed deletion from Section 11.2(c) of 
the CAT NMS Plan of the requirement that the fees charged to CAT 
Reporters with the most CAT-related activity be generally comparable;
    3. Commenters' views on whether allocating Participant fees by 
market share while allocating Industry Member fees by message traffic, 
when combined with the proposed 75%-25% split between Participants and 
Industry Member aggregate fees, introduces frictions (such as 
effectively double counting the message traffic sent and received by 
Industry Members, into the CAT fee model due to FINRA's allocation of 
fees from trade volume reported to trade reporting facilities); views 
on how frictions would result; any views on how this would benefit or 
harm efficiency, competition, and capital formation; any views on 
whether there are other benefits or costs of adopting such an approach; 
and any views on whether capping FINRA's contribution to CAT fees as 
described in the Participants' proposal mitigate any benefits or costs 
and to what extent;
    4. Commenters' views on potential alternative allocations of Total 
CAT Costs to Industry Members and Participants, including the 
allocations considered, but rejected, by the Participants, and the 
alternative allocations suggested by commenters as discussed in this 
order;
    5. Commenters' views on how fees would be passed on to Industry 
Members and investors if all CAT costs were allocated to Participants; 
views on how this outcome would be different than under the 
Participants' proposal; views on whether such an approach would benefit 
or harm efficiency, competition, and capital formation; and any views 
on whether there are other benefits or costs of adopting such an 
approach;
    6. Commenters' views on whether Industry Members have sufficient 
information to estimate and budget for their expected allocation of CAT 
fees each quarter; if not, any views on what additional information 
would Industry Members need to develop an estimate of these fees;
    7. Commenters' views on whether a Section 31 fee-like cost 
allocation framework (i.e., a transaction-based fee framework) would 
benefit or harm efficiency, competition, and capital formation, and any 
views on whether there are other benefits or costs of adopting such an 
approach;
    8. Commenters' views on the calculation of the Participant 
Allocation and the Adjusted Participant Allocation;
    9. Commenters' views on the determination to allocate 60% of the 
Adjusted Participant Allocation to Equities Participants and 40% to 
Options Participants, including views on whether the proposed 
allocation is consistent with the funding principles expressed in the 
CAT NMS Plan that state that the Operating Committee shall seek, among 
other things, ``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 . . . distinctions in the 
securities trading operations of Participants and Industry Members and 
their relative impact upon the Company resources and operations,'' 
\440\ and ``to avoid any disincentives such as placing an inappropriate 
burden on competition and a reduction in market quality;'' \441\
---------------------------------------------------------------------------

    \440\ Section 11.2(b) of the CAT NMS Plan.
    \441\ Section 11.2(e) of the CAT NMS Plan.
---------------------------------------------------------------------------

    10. Commenters' views on an alternative approach that would split 
costs between Participants and Industry Members by proportion of 
aggregate message traffic, then allocate the Participants' portion of 
fees across Participants by market share, with or without the proposed 
60%-40% split between Equities and Options Participants; any views on 
whether this would benefit or harm efficiency, competition and capital 
formation when compared to the Participants' proposal; and any views on 
whether there are other benefits or costs of adopting such an approach;
    11. Commenters' views on whether elements of the Participants' 
proposal entail cross-subsidization of activities (for example: 
Allocating 60% of Participants' fees to Equities Participants and 40% 
to Options Participants is unlikely to reflect these groups' relative 
message traffic; and discounting fees associated with message traffic 
for market-making activities based on quote/trade ratios reduces fees 
paid by Industry Members who are market makers); any views on how these 
cross-subsidizations benefit or harm efficiency, competition, and 
capital formation; and any views on whether there are other benefits or 
costs of adopting such an approach;
    12. Commenters' views on whether the lack of Industry Member 
participation on the Operating Committee prevents the Participants from 
arriving at an equitable allocation of CAT fees between Participants 
and Industry Members, and across members of those groups;
    13. Commenters' views on how any inherent conflicts of interest may 
be addressed in the proposal;
    14. Commenters' views on how allowing the Operating Committee to 
determine by vote how Participant fees are allocated across 
Participants would benefit or harm efficiency, competition, and capital 
formation, assuming that some proportion of CAT fees are to be 
allocated to Participants as a group; and any views on whether there 
are other benefits or costs of adopting such an approach;
    15. Commenters' views on the proposed quarterly Participant CAT 
fee, including views on its calculation; any views on whether the 
proposed fee raises any competitive issues; and any views on whether 
the proposed fee is consistent with the funding principles expressed in 
the CAT NMS Plan, which state that the Operating Committee shall seek, 
among other things, ``to create transparent, predictable revenue 
streams for the Company that are aligned with the anticipated costs to 
build, operate and administer the CAT and the other

[[Page 40134]]

costs of the Company;'' \442\ ``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 . . . distinctions 
in the securities trading operations of Participants and Industry 
Members and their relative impact upon the Company resources and 
operations;'' \443\ and ``to avoid any disincentives such as placing an 
inappropriate burden on competition and a reduction in market 
quality;'' \444\ and
---------------------------------------------------------------------------

    \442\ Section 11.2(a) of the CAT NMS Plan.
    \443\ Section 11.2(b) of the CAT NMS Plan.
    \444\ Section 11.2(e) of the CAT NMS Plan.
---------------------------------------------------------------------------

    16. Commenters' views on the decision to use total budgeted costs 
for the CAT for the relevant year as the Total CAT Costs for 
calculating fees for Participants and Industry Members, rather than 
costs already incurred; views on the statement that the total budgeted 
costs for the CAT may be adjusted on a quarterly basis by the Operating 
Committee; and views on the treatment of any surpluses.

The Commission also requests that commenters provide analysis to 
support their views, if possible.
    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposals should be approved or 
disapproved by August 16, 2021. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
August 30, 2021. Comments may be submitted by any of the following 
methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number 4-698 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 4-698. 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 Participants' principal offices. 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 4-698 and should be submitted on or before 
August 16, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\445\
---------------------------------------------------------------------------

    \445\ 17 CFR 200.30-3(a)(85).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15810 Filed 7-23-21; 8:45 am]
BILLING CODE 8011-01-P


