[Federal Register Volume 88, Number 60 (Wednesday, March 29, 2023)]
[Notices]
[Pages 18605-18609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06487]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97193; File No. 4-698]


Joint Industry Plan; Order Approving an Amendment to the National 
Market System Plan Governing the Consolidated Audit Trail

March 24, 2023.

I. Introduction

    On September 8, 2022, the Operating Committee for Consolidated 
Audit Trail, LLC (``CAT LLC''), on behalf of the following parties to 
the National Market System Plan Governing the Consolidated Audit Trail 
(the ``CAT NMS Plan''): \1\ BOX Exchange LLC, Cboe BYX Exchange, Inc., 
Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, 
Inc., Cboe C2 Exchange, Inc., Cboe Exchange, Inc., Financial Industry 
Regulatory Authority, Inc., Investors Exchange LLC, Long-Term Stock 
Exchange, Inc., 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'' or ``SROs'') filed with the Securities and Exchange 
Commission (``Commission'') pursuant to Section 11A(a)(3) of the 
Exchange Act,\2\ and Rule 608 thereunder,\3\ a proposed amendment 
(``Proposed Amendment'') to the CAT NMS Plan that would authorize CAT 
LLC to revise the Consolidated Audit Trail Reporter Agreement 
(``Reporter Agreement'') and the Consolidated Audit Trail Reporter 
Agent Agreement (``Reporter Agent Agreement'' and collectively with the 
Reporter Agreement, the ``Reporter Agreements'') by: (1) removing the 
arbitration provision from each agreement and replacing it with a forum 
selection provision (the ``Forum Selection Provision'') which would 
require that any dispute regarding CAT reporting be filed in a United 
States District Court for the Southern District of New York (the 
``SDNY''), or, in the absence of federal subject matter jurisdiction, a 
New York State Supreme Court within the First Judicial Department; and 
(2) revising the existing choice of law clause to provide that any 
dispute will be governed by federal law (in addition to New York law) 
(the ``Choice of Law Provision'').\4\ The proposed plan amendment was 
published for comment in the Federal Register on September 28, 2022.\5\ 
On December 22, 2022, the Commission instituted proceedings to 
determine whether to approve or disapprove the Proposed Amendment.\6\ 
This order approves the Proposed Amendment.
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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 Securities Exchange 
Act of 1934 (``Exchange Act'') and the rules and regulations 
thereunder. See Securities Exchange Act Release No. 79318 (Nov. 15, 
2016), 81 FR 84696 (Nov. 23, 2016). The CAT NMS Plan functions as 
the limited liability company agreement of the jointly owned limited 
liability company (``CAT LLC'') formed under Delaware state law 
through which the Participants conduct the activities of the CAT. On 
August 29, 2019, the Participants replaced the CAT NMS Plan in its 
entirety with the limited liability company agreement of a new 
limited liability company named Consolidated Audit Trail, LLC. The 
latest version of the CAT NMS Plan is available at https://catnmsplan.com/about-cat/cat-nms-plan.
    \2\ 15 U.S.C 78k-1(a)(3).
    \3\ 17 CFR 242.608.
    \4\ See Letter from Michael Simon, Chair, CAT NMS Plan Operating 
Committee, to Vanessa Countryman, Secretary, Commission, dated 
September 8, 2022.
    \5\ See Notice of Filing of Amendment to the National Market 
System Plan Governing the Consolidated Audit Trail, Securities 
Exchange Act Release No. 95874 (Sept. 22, 2022), 87 FR 58876 
(``Notice''). The Commission received no comments on the Proposed 
Amendment.
    \6\ See Securities Exchange Act Release No. 96568, 87 FR 80204 
(Dec. 29, 2022).
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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

[[Page 18606]]

national market system (``NMS'') plan to create, implement and maintain 
a consolidated audit trail (the ``CAT'' or ``CAT System'') that would 
capture customer and order event information for orders in NMS 
securities.\7\ On November 15, 2016, the Commission approved the CAT 
NMS Plan.\8\ On August 29, 2019, the Operating Committee for CAT LLC 
approved a Reporter Agreement and a Reporter Agent Agreement that would 
limit the total liability of CAT LLC, the Participants and the Plan 
Processor to a CAT Reporter \9\ for any calendar year to the lesser of 
the total of fees paid by the CAT Reporter to CAT LLC for the calendar 
year in which the claim arose or five hundred dollars. The Reporter 
Agreements also included a mandatory arbitration provision. The 
Participants required each Industry Member \10\ to execute a CAT 
Reporter Agreement prior to reporting data to CAT. On April 22, 2020, 
prior to the commencement of initial equities reporting for Industry 
Members, the Securities Industry and Financial Markets Association 
(``SIFMA'') filed, pursuant to Sections 19(d) and 19(f) of the Exchange 
Act, an application for review of actions taken by CAT LLC and the 
Participants (the ``Administrative Proceedings''). SIFMA alleged that 
by requiring Industry Members to execute the Reporter Agreement as a 
prerequisite to submitting data to the CAT, the Participants improperly 
prohibited or limited SIFMA members with respect to access to the CAT 
System in violation of the Exchange Act.\11\ On May 13, 2020, the 
Participants and SIFMA reached a settlement and terminated the 
Administrative Proceedings, allowing Industry Members to report data to 
the CAT pursuant to Reporter Agreements that do not contain a 
limitation of liability provision. Since that time, Industry Members 
have been transmitting data to the CAT.\12\
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    \7\ 17 CFR 242.613.
    \8\ See supra note 1.
    \9\ CAT Reporter means 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). See CAT NMS Plan at Section 1.1.
    \10\ Industry Member means a member of a national securities 
exchange or a member of a national securities association. See CAT 
NMS Plan at Section 1.1.
    \11\ See Notice, supra note 5, at 58877.
    \12\ For a more detailed description of the background for the 
Proposed Amendment, see Notice, supra note 5, at 58876-78. See also 
Notice of Filing of Amendment to the National Market System Plan 
Governing the Consolidated Audit Trail, Securities Exchange Act 
Release No. 90826 (Dec. 30, 2020), 86 FR 591 (Jan. 6, 2021).
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    On December 18, 2020, the Participants proposed to amend the CAT 
NMS Plan to authorize CAT LLC to revise the Reporter Agreements to 
insert limitation of liability provisions that would: (1) provide that 
CAT Reporters and CAT reporting agents accept sole responsibility for 
their access to and use of the CAT System, and that CAT LLC makes no 
representations or warranties regarding the CAT System or any other 
matter; (2) limit the liability of CAT LLC, the Participants, and their 
respective representatives to any individual CAT Reporter or CAT 
reporting agent to the lesser of the fees actually paid to CAT for the 
calendar year or five hundred dollars; (3) exclude all direct and 
indirect damages; and (4) provide that CAT LLC, the Participants, and 
their respective representatives shall not be liable for the loss or 
corruption of any data submitted by a CAT Reporter or CAT reporting 
agent to the CAT System (the ``Limitation of Liability 
Amendment'').\13\ On October 29, 2021, the Commission disapproved the 
Limitation of Liability Amendment.\14\
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    \13\ See Limitation of Liability Amendment, 86 FR at 593. The 
Commission received comments objecting to the proposal on the 
grounds that it is unfair for Industry Members to be liable for 
breaches because the Participants control the CAT System, insulating 
the Participants from liability would result in the Participants de-
prioritizing security, and that it would be inappropriate to 
effectively prohibit Industry Members from pursuing claims against 
CAT LLC and the Participants even in cases where they engage in 
willful misconduct, gross negligence, bad faith, or criminal acts. 
The Commission also received two response letters from the 
Participants. Comments received in response to the Limitation of 
Liability Amendment can be found at https://www.sec.gov/comments/4-698/4-698.htm.
    \14\ See Securities Exchange Act Release No. 93484 (Oct. 29, 
2021), 86 FR 60933 (Nov. 4, 2021) (``Limitation of Liability 
Disapproval Order'').
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    On May 20, 2022, the Participants proposed to amend the CAT NMS 
Plan to authorize CAT LLC to revise the Reporter Agreements to insert 
limitation of liability provisions that would: (1) replace the 
arbitration provisions in the agreement with a forum selection 
provision, which would require the parties to the Reporter Agreements 
to bring any action in the SDNY, or, if there is no basis for federal 
subject matter jurisdiction, in the New York State Supreme Court within 
the First Judicial Department and, if it is permitted, seek assignment 
to the Commercial Division; (2) revise the governing law provision to 
provide that the governing law for all disputes will be United States 
federal law and the laws of the state of New York; (3) include a 
provision requiring the parties to the Reporter Agreements to waive 
their right to a jury trial, with no exception; (4) include a provision 
stating that CAT LLC and the Plan Processor disclaim any, and make no, 
representations or warranties, regarding the CAT System or any other 
matter pertaining to the Reporter Agreements, including any 
representation or warranty relating to merchantability, quality, 
fitness for a particular purpose, compliance with applicable laws, non-
infringement, title, and sequencing, timeliness, accuracy or 
completeness of information.\15\ On September 6, 2022, prior to the end 
of the 90-day period provided for in Exchange Act Rule 
608(b)(2)(i),\16\ the Participants withdrew that proposed 
amendment.\17\
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    \15\ See Notice of Filing of Amendment to the National Market 
System Plan Governing the Consolidated Audit Trail, Securities 
Exchange Act Release No. 95031 (Jun. 3, 2022), 87 FR 35273. Comments 
received in response to the proposal can be found at https://www.sec.gov/comments/4-698/4-698-b.htm. The Commission received 
comments objecting to the disclaimer of warranties provision, 
arguing, among other things, that the disclaimer of warranties 
provision functions as a limitation of liability provision, would 
disincentivize investment in adequate security for the CAT system, 
and that Participants should not be able to disclaim warranties and 
representations regarding the CAT System, which they operate and 
control. One commenter also objected to the jury waiver provision 
stating that every case is different, and while some cases might 
present complicated legal and factual issues that are best resolved 
by judges, other cases might present simpler and more 
straightforward issues that are better suited for a jury trial. See 
Letter from Ellen Greene, Managing Director, Equity and Options 
Market Structure, and Kevin M. Carroll, Managing Director and 
Associate General Counsel, Office of General Counsel, SIFMA, to 
Vanessa Countryman, Secretary, dated June 30, 2022, available at 
https://www.sec.gov/comments/4-698/4698-20133896-303830.pdf, at 3. 
The Commission received one comment letter on the proposal that did 
not relate to the substance of the proposal.
    \16\ 17 CFR 242.608(b)(2)(i).
    \17\ See Securities Exchange Act Release No. 96102 (Oct. 19, 
2022), 87 FR 64294 (Oct. 24, 2022).
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III. Description of the Proposal

    The Participants now propose to amend the CAT NMS Plan to authorize 
CAT LLC to revise the Reporter Agreements by: (1) removing the 
arbitration provision from each agreement and replacing it with the 
Forum Selection Provision, which would require that any dispute 
regarding CAT reporting be filed in the SDNY, or, in the absence of 
federal subject matter jurisdiction, a New York State Supreme Court 
within the First Judicial Department; and (2) revising the existing 
choice of law clause to provide that any dispute will be governed by 
federal law (in addition to New York law).\18\
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    \18\ See Notice, supra note 5, at 58876.
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    In support of the Forum Selection Provision, the Participants 
believe that a

[[Page 18607]]

court is the proper forum to resolve claims concerning CAT reporting, 
including claims relating to potential technical issues, system 
failures, and data breaches.\19\ The Participants state that litigating 
in court is appropriate to address claims, which likely will involve 
regulatory issues, including the doctrine of regulatory immunity,\20\ 
and complex legal and factual issues involved in cyber litigation.\21\ 
The Participants state that litigating in court would allow parties to 
rely on precedent that has been developed to address those issues when 
resolving disputes that could potentially involve parties seeking 
substantial damages.\22\
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    \19\ Id. at 58878. The Participants note that in the aftermath 
of high-profile data breaches, plaintiffs have brought common law 
claims of breach of contract and negligence as well as claims based 
on various federal statutes including the Stored Communications Act, 
the Federal Wiretap Act, and the Computer Fraud and Abuse Act. Id.
    \20\ Id. at 58879. The Participants note that comments letters 
in connection with the limitation of liability amendment 
``demonstrated an assumption and understanding that'' assessments of 
immunity would be decided by the courts. Id.
    \21\ See id. at 58879. The Participants state that assessing 
potential defenses will likely require a tribunal to resolve complex 
issues that implicate the Participants' status as self-regulatory 
organizations and the Commission's oversight of the CAT. Id. at 
58878.
    \22\ Id. at 58879. The Participants also state that litigating 
disputes in court would promote the development of precedent to 
guide Industry Members' and Participants' conduct. Id.
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    The Participants state that courts offer important procedural 
mechanisms that would help resolve claims related to CAT reporting 
fairly and efficiently.\23\ The Participants state that adjudicating 
disputes in the courts would permit consolidation and joinder of 
claims, as federal and New York State rules of civil procedure provide 
mechanisms for consolidation and joinder, as well as permit the use of 
class actions for certain disputes.\24\ The Participants state that in 
arbitration, in contrast, the ultimate decision on consolidation is 
made by the arbitrator.\25\ Further, the Participants state that the 
AAA Commercial Arbitration rules are silent on joinder, and parties 
have faced complications in joining parties to an arbitration claim 
when they are non-signatories, which could be significant since claims 
arising out of CAT reporting might be related incidents that impact 
Industry Members and other market participants (e.g., retail 
investors).\26\ The Participants state that for those reasons, if the 
arbitration provisions remain in the Reporter Agreements, cases arising 
out of the same facts or involving the same legal issues might result 
in different outcomes and damage awards, and potentially create 
inconsistent rules.\27\
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    \23\ See id. at 58876.
    \24\ Id. at 58878-79.
    \25\ Id. at 58879.
    \26\ Id.
    \27\ Id.
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    The Participants further state that adjudicating claims related to 
CAT in court provides parties with appellate rights and rules governing 
the discovery process and admissibility of evidence.\28\ They state 
that direct appellate review is largely absent in arbitration and that 
the rules relating to discovery and evidence are more limited.\29\
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    \28\ Id. at 58879-80.
    \29\ Id.
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    As for the forum itself, the Participants state that the SDNY and 
the New York State Supreme Court are venues with extensive experience 
adjudicating matters involving federal securities laws, market 
structure, and cybersecurity.\30\ The Participants state that the 
Second Circuit, and the SDNY, have experience with securities and 
financial regulation matters, data breaches and cybersecurity 
incidents, and have authored opinions regarding the scope of regulatory 
immunity.\31\ The Participants also state that New York State courts 
also focus on complex cases and have addressed the scope of regulatory 
immunity.\32\ They state that New York is a convenient venue for the 
parties since the two largest securities exchanges, several 
Participants, and the most prominent Industry Members by trading volume 
are located in New York.\33\
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    \30\ Id. at 58880-81.
    \31\ Id.
    \32\ Id.
    \33\ Id. The Participants note that the existing Reporter 
Agreements are governed by New York law and provide that any claim 
must be commenced in New York (i.e., in the current arbitration 
provision). They also note that all dates and times referenced in 
the Reporter Agreements are set to New York time. Id.
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    The Participants state that they are modifying the governing law 
provision, which currently states that disputes arising out of the 
Reporter Agreements will be governed by New York State law, to clarify 
that they will be governed by both federal law and New York State 
law.\34\ The Participants state that the reason for this change is that 
such claims could involve issues of federal law because CAT LLC was 
created pursuant to federal law and is subject to a federal regulatory 
regime.\35\
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    \34\ Id. at 58881.
    \35\ Id. The Participants proposed that ``[t]he Operating 
Committee shall have authority in its sole discretion to make non-
substantive amendments to the forum selection provision and 
governing law provision in the Consolidated Audit Trail Reporter 
Agreement and the Consolidated Audit Trail Reporting Agent 
Agreement.'' Id. at 58882.
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    The Participants propose to implement the Proposed Amendment by 
making the revised CAT Reporter Agreements effective upon Commission 
approval of the Proposed Amendment, without requiring CAT Reporters and 
CAT reporting agents to re-sign the agreements.\36\ The Commission 
understands that the Participants will require future CAT Reporters to 
sign revised CAT Reporter Agreements that include the Forum Selection 
Provision and the Choice of Law Provision prior to reporting to the 
CAT.
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    \36\ Id. No commenters disputed the proposal's assertion that 
the amendments would be effective without re-signing.
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IV. Discussion

A. The Applicable Standard of Review

    Under Rule 608(b)(2) of Regulation NMS, the Commission shall 
approve a national market system plan or proposed amendment to an 
effective 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.\37\ Under Rule 700(b)(3)(ii) of 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 that are applicable to NMS plans is on 
the plan participants that filed the NMS plan filing.'' \38\ The 
Commission shall disapprove a national market system plan or proposed 
amendment if it does not make such a finding.\39\
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    \37\ 17 CFR 242.608(b)(2).
    \38\ 17 CFR 201.700(b)(3)(ii). ``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 a NMS plan filing is 
consistent with the Exchange Act and the rules and regulations 
issued thereunder that are applicable to NMS plans.'' Id.
    \39\ 17 CFR 242.608(b)(2). ``Approval or disapproval of a 
national market system plan, or an amendment to an effective 
national market system plan (other than an amendment initiated by 
the Commission), shall be by order.'' Id.
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    For the reasons described below, the Commission believes that the 
Proposed Amendment is consistent with Rule 608 of Regulation NMS, and 
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

[[Page 18608]]

the mechanisms of, a national market system, or otherwise in 
furtherance of the purposes of the Exchange Act.\40\
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    \40\ 17 CFR 242.608(b)(2).
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B. Forum Selection Provision

    The Commission believes it is appropriate for the Participants to 
amend the CAT NMS Plan to require the CAT Reporter Agreements to 
provide that the courts, instead of arbitration, be the forum to 
resolve claims regarding the CAT Reporter Agreements. In the Proposed 
Amendments, the Participants reasonably identified several potential 
benefits of litigation. As the Participants note, certain potential 
claims arising out of CAT reporting, including technical issues, system 
failures, and data breaches, are likely to impact multiple parties, and 
requiring arbitration may result in actions involving the same common 
questions of law or fact or arising out of the same occurrence being 
brought piecemeal and lead to inconsistent outcomes.\41\ Resolving such 
claims through litigation may allow for the consolidation and/or 
joinder of claims, and class actions depending on the nature of any 
claims that arise, which could lead to more efficient and fair 
resolution of potential disputes.\42\ In addition, issues of regulatory 
immunity may arise in some disputes and resolving those disputes 
through litigation would also allow for resolution of those issues 
through the application of precedent that has been developed by the 
courts.\43\ At the same time, the Commission recognizes that there are 
advantages to arbitration, which is used throughout the securities 
industry and in some circumstances may offer a quicker and less costly 
way to resolve disputes. Nonetheless, in the context of the Proposed 
Amendment before us for consideration, the Commission believes that 
there are reasonable grounds for choosing to resolve potential claims 
arising out of CAT reporting through litigation in court rather than 
arbitration, and particularly in light of the lack of any commenter 
objection to the Proposed Amendment, the Participants' choice to 
mandate that such disputes be resolved through court litigation rather 
than mandate that they be resolved through arbitration is 
appropriate.\44\
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    \41\ Notice, supra note 5, at 58878-79.
    \42\ Id.
    \43\ Id. at 58879.
    \44\ The Participants proposed that ``[t]he Operating Committee 
shall have authority in its sole discretion to make non-substantive 
amendments to the forum selection provision and governing law 
provision in the Consolidated Audit Trail Reporter Agreement and the 
Consolidated Audit Trail Reporting Agent Agreement.'' Id. at 58882. 
It is the Commission's understanding that a non-substantive 
amendment is one that does not affect the rights or obligations of 
any parties, including a CAT Reporter or the Commission. 
Accordingly, the Commission does not believe this provision is 
inconsistent with the Exchange Act.
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    The Commission also believes that the Participants' proposal to 
amend the CAT NMS Plan to designate the SDNY and, in the absence of 
federal subject matter jurisdiction, New York state courts, in the 
Forum Selection Provision is appropriate. The Participants identify 
reasonable grounds for those choices. As the Participants observe, both 
the SDNY and New York state courts provide for robust rules and 
procedures relating to consolidation, joinder, class actions, 
discovery, and direct appellate review. As stated by the Participants 
``the SDNY routinely handles complicated securities matters with broad 
implications for the national financial markets,'' and the Second 
Circuit in particular has significant experience determining the rights 
and remedies of parties following data breaches. Further, both the 
Second Circuit and New York state courts have addressed the scope of 
regulatory immunity, an issue that could arise in any disputes in light 
of the Participants' status as self-regulatory organizations.\45\ The 
Commission also notes that no commenters objected to the Participants' 
choice.
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    \45\ Id. at 58880-81.
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    For the reasons noted above, the Commission believes that the 
Participants' proposal to amend the CAT NMS Plan to authorize CAT LLC 
to modify the CAT Reporter Agreements to include the Forum Selection 
Provision is appropriate in the public interest, for the protection of 
investors and the maintenance of fair and orderly markets, and to 
remove impediments to, and perfect the mechanisms of, a national market 
system or otherwise in furtherance of the purposes of the Exchange 
Act.\46\
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    \46\ 17 CFR 242.608(b)(2).
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C. Governing Law Provision

    The Commission believes it is reasonable for the Reporter 
Agreements to provide that any matters between CAT LLC and either a CAT 
Reporter or a CAT Reporting Agent, will be governed by federal law and 
the laws of the State of New York, instead of just by the laws of the 
State of New York. The Commission agrees with the Participants' 
assertion that because CAT LLC was created pursuant to federal law, 
claims between Participants and other parties, including CAT Reporters 
and Industry Members, could involve issues of federal and not just 
state law.\47\ The Proposed Amendment thus reasonably specifies that 
both sources of law would apply. For that reason, the Commission 
believes that this aspect of the proposal is 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.\48\
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    \47\ Notice, supra note 5, at 58881.
    \48\ 17 CFR 242.608(b)(2).
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V. Impact on Efficiency, Competition, and Capital Formation

    In determining whether to approve a proposed amendment, and whether 
such amendment is in the public interest, Rule 613 requires the 
Commission to consider the potential effects of the proposed amendment 
on efficiency, competition and capital formation.\49\ The Commission 
has reviewed the arguments about such effects put forth by the 
Participants and independently analyzed the likely effects of the 
Proposed Amendment on efficiency, competition, and capital formation. 
The Commission received no comment letters addressing the economic 
impact of the Proposed Amendment. The Commission believes that the 
Forum Selection Provision could modestly improve efficiency and 
competition, and that the Proposed Amendment will otherwise have no 
material impact on efficiency, competition, and capital formation.
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    \49\ 17 CFR 242.613(a)(5).
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A. Efficiency

    The Commission believes the Forum Selection Provision could 
modestly reduce potential inefficiencies in dispute resolution 
regarding the CAT Reporter Agreements. As discussed above,\50\ the 
Forum Selection Provision requires that any dispute regarding CAT 
reporting be filed in the SDNY, or, in the absence of federal subject 
matter jurisdiction, a New York State Supreme Court within the First 
Judicial Department. Court mechanisms for consolidating claims, joinder 
of claims, and class actions may facilitate coordination among the 
possibly large number of parties impacted by technical issues, system 
failures, and data breaches and reduce some legal costs involved in 
dispute resolution. The precedent generated by disputes resolved 
through courts may also slightly reduce aggregate legal costs by 
minimizing the need for the adjudicator and litigants to completely 
reevaluate recurring legal issues every time that

[[Page 18609]]

they arise. However, these potential reductions in aggregate legal 
costs and information technology costs may be partially offset by 
increases in legal costs for disputes that involve individual CAT 
Reporters and CAT LLC. Legal costs for these bilateral disputes may 
increase because resolution via arbitration can incur fewer legal costs 
than resolution via courts.\51\
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    \50\ See Section IV.A, supra.
    \51\ See Section IV.A, supra.
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    The Commission believes the Governing Law would not affect 
efficiency because it does not produce a substantive change in the 
application of the federal laws of the United States and the laws of 
the state of New York to legal matters involving CAT LLC and CAT 
Reporters.

B. Competition

    The Commission believes the Forum Selection Provision will have 
small positive effects on competition within markets with businesses 
subject to CAT Reporter Agreements. The Forum Selection Provision, via 
courts' mechanisms for dispute consolidation, may reduce individual 
firms' legal expenses during disputes with CAT LLC because dispute 
related legal costs may then be shared by multiple parties. If these 
legal expenses are shared approximately equally among involved firms, 
then small firms may benefit slightly more from courts' mechanisms for 
dispute consolidation than large firms because legal costs will 
decrease more as a fraction of revenue for small firms than large 
firms. But, the benefits of dispute consolidation for small firms may 
be partially reduced by greater legal costs for bilateral disputes with 
CAT LLC where legal costs cannot be shared by several CAT Reporters and 
resolution via arbitration may require lower legal costs.\52\ The Forum 
Selection Provision may also make the outcomes of disputes between CAT 
Reporters and CAT LLC slightly more predictable because legal precedent 
and previous court cases may provide information regarding disputes 
possible outcomes. Less uncertainty about the outcomes of disputes 
involving CAT LLC and CAT Reporters may slightly reduce financing costs 
for firms by reducing uncertainty about the effect of dispute 
resolution outcomes on small firms' profitability. The reduction in 
financing costs may be greater for smaller firms where the effects of 
disputes' outcomes may have relatively large effects on these firms' 
profitability.
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    \52\ See id.
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    The Commission believes the Governing Law Provision will not 
materially affect competition because requiring federal law and the 
laws of the state of New York to govern all matters between the CAT LLC 
and the CAT Reporters will not have an economically significant effect 
on the legal costs, or legal outcomes, or other factors that might 
affect competition among businesses subject to CAT Reporter Agreements.

C. Capital Formation

    The Commission believes the Forum Selection Provision and Governing 
Law Provision will not materially affect capital formation. The 
proposed amendment relates to dispute resolution between Industry 
Members and Participants and is thus unlikely to materially impact 
capital formation because the proposed amendment does not generally 
affect publicly traded firms' cost of capital, does not affect factors 
influencing investors' investments in publicly traded companies, and 
the previously discussed potential efficiency and competition benefits 
of the proposed amendment are too small in magnitude to affect the 
prices at which CAT Reporters offer trading services and products to 
investors.

VI. Conclusion

    For the reasons set forth above, the Commission finds that the 
Proposed Amendment is consistent with the requirements of the Exchange 
Act and the rules and regulations thereunder, and in particular, 
Section 11A of the Exchange Act,\53\ and Rule 608(b)(2) \54\ thereunder 
in that the Proposed Amendment is 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.
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    \53\ 15 U.S.C. 78k-1.
    \54\ 17 CFR 242.608(b)(2).
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    It is therefore ordered, pursuant to Section 11A of the Exchange 
Act,\55\ and Rule 608(b)(2) thereunder,\56\ that the Proposed Amendment 
(File No. 4-698) be, and hereby is, approved.
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    \55\ 15 U.S.C. 78k-1.
    \56\ 17 CFR 242.608.

    By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-06487 Filed 3-28-23; 8:45 am]
BILLING CODE 8011-01-P


