Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish Fees for Industry Members Related to Reasonably Budgeted Costs of the National Market System Plan Governing the Consolidated Audit Trail for the Period From July 16, 2024 Through December 31, 2024
| Citation | 89 FR 72055 |
| Published date | 04 September 2024 |
| FR Document | 2024-19757 |
| Pages | 72055-72078 |
| Section | Notices |
| Issuer | Securities and Exchange Commission |
Federal Register, Volume 89 Issue 171 (Wednesday, September 4, 2024)
[Federal Register Volume 89, Number 171 (Wednesday, September 4, 2024)]
[Notices]
[Pages 72055-72078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19757]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100844; File No. SR-NYSEAMER-2024-50]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Establish
Fees for Industry Members Related to Reasonably Budgeted Costs of the
National Market System Plan Governing the Consolidated Audit Trail for
the Period From July 16, 2024 Through December 31, 2024
August 28, 2024.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of
1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on August 16, 2024, NYSE American LLC (``NYSE American'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the NYSE American Equities Price
List (``Equities Price List'') and the NYSE American Options Fee
Schedule (``Options Fee Schedule'') to establish fees for Industry
Members \3\ related to reasonably budgeted CAT costs of the National
Market System Plan Governing the Consolidated Audit Trail (the ``CAT
NMS Plan'' or ``Plan'') for the period from July 16, 2024 through
December 31, 2024. These fees would be payable to Consolidated Audit
Trail, LLC (``CAT LLC'' or the ``Company'') and referred to as CAT Fee
2024-1, and would be described in a section of the Equities Price List
and the Options Fee Schedule titled ``Consolidated Audit Trail Funding
Fees.'' The fee rate for CAT Fee 2024-1 would be $0.000035 per executed
equivalent share. CAT Executing Brokers will receive their first
monthly invoice for CAT Fee 2024-1 in
[[Page 72056]]
October 2024 calculated based on their transactions as CAT Executing
Brokers for the Buyer (``CEBB'') and/or CAT Executing Brokers for the
Seller (``CEBS'') in September 2024. The proposed rule change is
available on the Exchange's website at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
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\3\ An ``Industry Member'' is defined as ``a member of a
national securities exchange or a member of a national securities
association.'' See NYSE American Rule 6810(u). See also Section 1.1
of the CAT NMS Plan. Unless otherwise specified, capitalized terms
used in this rule filing are defined as set forth in the CAT NMS
Plan and/or the CAT Compliance Rule. See NYSE American Rule 6810.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On July 11, 2012, the Commission adopted Rule 613 of Regulation
NMS, which required the self-regulatory organizations (``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 across all
markets, from the time of order inception through routing,
cancellation, modification or execution.\4\ On November 15, 2016, the
Commission approved the CAT NMS Plan.\5\ Under the CAT NMS Plan, the
Operating Committee has the discretion to establish funding for CAT LLC
to operate the CAT, including establishing fees for Industry Members to
be assessed by CAT LLC that would be implemented on behalf of CAT LLC
by the Participants.\6\ The Operating Committee adopted a revised
funding model to fund the CAT (``CAT Funding Model''). On September 6,
2023, the Commission approved the CAT Funding Model after concluding
that the model was reasonable and that it satisfied the requirements of
Section 11A of the Exchange Act and Rule 608 thereunder.\7\
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\4\ Securities Exchange Act Rel. No. 67457 (July 18, 2012), 77
FR 45722 (Aug. 1, 2012).
\5\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81
FR 84696 (Nov. 23, 2016) (``CAT NMS Plan Approval Order'').
\6\ Section 11.1(b) of the CAT NMS Plan.
\7\ Securities Exchange Act Rel. No. 98290 (Sept. 6, 2023), 88
FR 62628 (Sept. 12, 2023) (``CAT Funding Model Approval Order'').
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The CAT Funding Model provides a framework for the recovery of the
costs to create, develop and maintain the CAT, including providing a
method for allocating costs to fund the CAT among Participants and
Industry Members. The CAT Funding Model establishes two categories of
fees: (1) CAT fees assessed by CAT LLC and payable by certain Industry
Members to recover a portion of historical CAT costs previously paid by
the Participants (``Historical CAT Assessment'' fees); and (2) CAT fees
assessed by CAT LLC and payable by Participants and Industry Members to
fund prospective CAT costs (``CAT Fees'').\8\
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\8\ Under the CAT Funding Model, the Operating Committee may
establish CAT Fees related to CAT costs going forward. Section
11.3(a) of the CAT NMS Plan. This filing only establishes CAT Fee
2024-1 related to reasonably budgeted CAT costs for the period from
July 16, 2024 through December 31, 2024 as described herein; it does
not address any other potential CAT Fees related to CAT costs. Any
such other CAT Fee will be subject to a separate fee filing. In
addition, under the CAT Funding Model, the Operating Committee may
establish one or more Historical CAT Assessments. Section 11.3(b) of
the CAT NMS Plan. This filing does not address any Historical CAT
Assessments.
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Under the CAT Funding Model, Participants, CEBBs and CEBSs are
subject to fees designed to cover the ongoing budgeted costs of the
CAT, as determined by the Operating Committee. ``The Operating
Committee will establish fees (`CAT Fees') to be payable by
Participants and Industry Members with regard to CAT costs not
previously paid by the Participants (`Prospective CAT Costs').'' \9\ In
establishing a CAT Fee, the Operating Committee will calculate a ``Fee
Rate'' for the relevant period. Then, for each month in which a CAT Fee
is in effect, each CEBB and CEBS would be required to pay the fee for
each transaction in Eligible Securities executed by the CEBB or CEBS
from the prior month as set forth in CAT Data, where the fee for each
transaction will be calculated by multiplying the number of executed
equivalent shares in the transaction by one-third and by the Fee
Rate.\10\
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\9\ Section 11.3(a) of the CAT NMS Plan.
\10\ In approving the CAT Funding Model, the Commission stated
that, ``[t]he proposed recovery of Prospective CAT Costs is
appropriate.'' CAT Funding Model Approval Order at 62651.
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The CAT Fees to be paid by CEBBs and CEBSs are designed to
contribute toward the recovery of two-thirds of the budgeted CAT costs
for the relevant period.\11\ The CAT Funding Model is designed to
require that the Participants contribute to the recovery of the
remaining one-third of the budgeted CAT costs.\12\ Participants would
be subject to the same Fee Rate as CEBBs and CEBSs.\13\ While CAT Fees
charged to Industry Members become effective in accordance with the
requirements of Section 19(b) of the Exchange Act,\14\ CAT fees charged
to Participants are implemented via an approval of the CAT fees by the
Operating Committee in accordance with the requirements of the CAT NMS
Plan.\15\ Accordingly, this filing does not address Participant CAT
fees as they are described in the CAT NMS Plan.\16\
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\11\ Section 11.3(a)(iii)(A) of the CAT NMS Plan.
\12\ Section 11.3(a)(ii)(A) of the CAT NMS Plan.
\13\ Section 11.3(a)(ii) of the CAT NMS Plan.
\14\ Section 11.3(a)(i)(A)(I) of the CAT NMS Plan.
\15\ CAT Funding Model Approval Order at 62659.
\16\ See Section 11.3(a)(ii) and Appendix B of the CAT NMS Plan.
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CAT LLC proposes to charge CEBBs and CEBSs (as described in more
detail below) CAT Fee 2024-1 to recover the reasonably budgeted CAT
costs for July 16, 2024 through December 31, 2024, in accordance with
the CAT Funding Model. To implement this fee on behalf of CAT LLC, the
CAT NMS Plan requires the Participants to ``file with the SEC under
Section 19(b) of the Exchange Act any such fees on Industry Members
that the Operating Committee approves, and such fees shall be labeled
as `Consolidated Audit Trail Funding Fees.' '' \17\ The Plan further
states that ``[o]nce the Operating Committee has approved such Fee
Rate, the Participants shall be required to file with the SEC pursuant
to Section 19(b) of the Exchange Act CAT Fees to be charged to Industry
Members calculated using such Fee Rate.'' \18\ Accordingly, the purpose
of this filing is to implement a CAT Fee on behalf of CAT LLC for
Industry Members, referred to as CAT Fee 2024-1, in accordance with the
CAT NMS Plan.
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\17\ Section 11.1(b) of the CAT NMS Plan.
\18\ Section 11.3(a)(i)(A)(I) of the CAT NMS Plan.
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(1) CAT Executing Brokers
CAT Fee 2024-1 will be charged to each CEBB and CEBS for each
applicable transaction in Eligible Securities.\19\ The CAT NMS Plan
defines a ``CAT Executing Broker'' to mean:
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\19\ In its approval of the CAT Funding Model, the Commission
determined that charging CAT fees to CAT Executing Brokers was
reasonable. In reaching this conclusion, the Commission noted that
the use of CAT Executing Brokers is appropriate because the CAT
Funding Model is based upon the calculation of executed equivalent
shares, and, therefore, charging CAT Executing Brokers would reflect
their executing role in each transaction. Furthermore, the
Commission noted that, because CAT Executing Brokers are already
identified in transaction reports from the exchanges and FINRA's
equity trade reporting facilities recorded in CAT Data, charging CAT
Executing Brokers could streamline the billing process. CAT Funding
Model Approval Order at 62629.
[[Page 72057]]
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(a) with respect to a transaction in an Eligible Security that
is executed on an exchange, the Industry Member identified as the
Industry Member responsible for the order on the buy-side of the
transaction and the Industry Member responsible for the sell-side of
the transaction in the equity order trade event and option trade
event in the CAT Data submitted to the CAT by the relevant exchange
pursuant to the Participant Technical Specifications; and (b) with
respect to a transaction in an Eligible Security that is executed
otherwise than on an exchange and required to be reported to an
equity trade reporting facility of a registered national securities
association, the Industry Member identified as the executing broker
and the Industry Member identified as the contra-side executing
broker in the TRF/ORF/ADF transaction data event in the CAT Data
submitted to the CAT by FINRA pursuant to the Participant Technical
Specifications; provided, however, in those circumstances where
there is a non-Industry Member identified as the contra-side
executing broker in the TRF/ORF/ADF transaction data event or no
contra-side executing broker is identified in the TRF/ORF/ADF
transaction data event, then the Industry Member identified as the
executing broker in the TRF/ORF/ADF transaction data event would be
treated as CAT Executing Broker for the Buyer and for the
Seller.\20\
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\20\ Section 1.1 of the CAT NMS Plan. Note that CEBBs and CEBSs
may, but are not required to, pass-through their CAT Fees to their
clients, who may, in turn, pass their fees to their clients until
they are imposed ultimately on the account that executed the
transaction. See CAT Funding Model Approval Order at 62649.
The following fields of the Participant Technical Specifications
indicate the CAT Executing Brokers for the transactions executed on an
exchange:
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\21\ See Table 23, Section 4.7 (Order Trade Event) of the CAT
Reporting Technical Specifications for Plan Participants, Version
4.1.0-r21 (Apr. 15, 2024), https://www.catnmsplan.com/sites/default/files/2024-04/04.15.2024-CAT_Reporting_Technical_Specifications_for_Participants_4.1.0-r21.pdf (``CAT Reporting Technical Specifications for Plan
Participants'').
\22\ See Table 51, Section 5.2.5.1 (Simple Option Trade Event)
of the CAT Reporting Technical Specifications for Plan Participants.
Equity Order Trade (EOT) \21\
----------------------------------------------------------------------------------------------------------------
Include
No. Field name Data type Description key
----------------------------------------------------------------------------------------------------------------
12.n.8/13.n.8................. member........... Member Alias.... The identifier for the member C
firm that is responsible for
the order on this side of the
trade.
Not required if there is no
order for the side as
indicated by the NOBUYID/
NOSELLID instruction.
This must be provided if
orderID is provided.
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Option Trade (OT) \22\
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Include
No. Field name Data type Description key
----------------------------------------------------------------------------------------------------------------
16.n.13/17.n.13............... member........... Member Alias.... The identifier for the member R
firm that is responsible for
the order.
----------------------------------------------------------------------------------------------------------------
In addition, the following fields of the Participant Technical
Specifications would indicate the CAT Executing Brokers for the
transactions executed otherwise than on an exchange:
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\23\ See Table 61, Section 6.1 (TRF/ORF/ADF Transaction Data
Event) of the CAT Reporting Technical Specifications for Plan
Participants.
TRF/ORF/ADF Transaction Data Event (TRF) \23\
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Include
No. Field name Data type Description key
----------------------------------------------------------------------------------------------------------------
26............................ reportingExecutin Member Alias.... MPID of the executing party.... R
gMpid.
28............................ contraExecutingMp Member Alias.... MPID of the contra-side C
id. executing party.
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(2) Calculation of Fee Rate 2024-1
The Operating Committee determined the Fee Rate to be used in
calculating CAT Fee 2024-1 (``Fee Rate 2024-1'') by dividing the
reasonably budgeted CAT costs (``Budgeted CAT Costs 2024-1'') for the
period from July 16, 2024 through December 31, 2024 (``CAT Fee 2024-1
Period'') by the reasonably projected total executed share volume of
all transactions in Eligible Securities for the four-month recovery
period, as discussed in detail below.\24\ Based on this calculation,
the Operating Committee has determined that Fee Rate 2024-1 would be
$0.0001043598251997246 per executed equivalent share. This rate is then
divided by three and rounded to determine the fee rate of $0.000035 per
executed equivalent share that will be assessed to CEBBs and CEBSs, as
also discussed in detail below.
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\24\ Section 11.3(a)(i) of the CAT NMS Plan.
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(A) CAT Fee 2024-1 Period
CAT LLC proposes to implement CAT Fee 2024-1 as the first CAT Fee
related to Prospective CAT Costs. CAT LLC proposes to commence CAT Fee
2024-1 during the year, rather than at the beginning of the year.
Accordingly, CAT Fee 2024-1 ``would be calculated as described in
paragraph II'' of Section 11.3(a)(i)(A) of the CAT NMS Plan, which
states that ``[d]uring each year, the Operating Committee will
calculate a new Fee Rate by dividing the reasonably budgeted CAT costs
for the remainder of the year by the reasonably projected total
executed equivalent share volume of all transactions in Eligible
Securities for the remainder of
[[Page 72058]]
the year.'' \25\ For CAT Fee 2024-1, the reasonably budgeted CAT costs
for ``the remainder of the year'' are the reasonably budgeted CAT costs
from July 16, 2024 through December 31, 2024. This period is referred
to as the CAT Fee 2024-1 Period. Such costs would be recovered over a
four-month period, where the first invoices are sent in October 2024
based on transactions in September 2024.
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\25\ Section 11.3(a)(i)(A)(II) of the CAT NMS Plan.
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(B) Executed Equivalent Shares for Transactions in Eligible Securities
Under the CAT NMS Plan, for purposes of calculating CAT Fees,
executed equivalent shares in a transaction in Eligible Securities will
be reasonably counted as follows: (1) each executed share for a
transaction in NMS Stocks will be counted as one executed equivalent
share; (2) each executed contract for a transaction in Listed Options
will be counted based on the multiplier applicable to the specific
Listed Options (i.e., 100 executed equivalent shares or such other
applicable multiplier); and (3) each executed share for a transaction
in OTC Equity Securities will be counted as 0.01 executed equivalent
share.\26\
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\26\ Section 11.3(a)(i)(B) of the CAT NMS Plan. In approving the
CAT Funding Model, the Commission concluded that ``the use of
executed equivalent share volume as the basis of the proposed cost
allocation methodology is reasonable and consistent with the
approach taken by the funding principles of the CAT NMS Plan.'' CAT
Funding Model Approval Order at 62640.
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(C) Budgeted CAT Costs 2024-1
The CAT NMS Plan states that ``[t]he budgeted CAT costs for the
year shall be comprised of all reasonable fees, costs and expenses
reasonably budgeted to be incurred by or for the Company in connection
with the development, implementation and operation of the CAT as set
forth in the annual operating budget approved by the Operating
Committee pursuant to Section 11.1(a) of the CAT NMS Plan, or as
adjusted during the year by the Operating Committee.'' \27\ Section
11.1(a) of the CAT NMS Plan describes the requirement for the Operating
Committee to approve an operating budget for CAT LLC on an annual
basis. It requires the budget to ``include the projected costs of the
Company, including the costs of developing and operating the CAT for
the upcoming year, and the sources of all revenues to cover such costs,
as well as the funding of any reserve that the Operating Committee
reasonably deems appropriate for the prudent operation of the
Company.'' Section 11.1(a)(i) of the CAT NMS Plan further states that:
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\27\ Section 11.3(a)(i)(C) of the CAT NMS Plan.
[w]ithout limiting the foregoing, the reasonably budgeted CAT costs
shall include technology (including cloud hosting services,
operating fees, CAIS operating fees, change request fees and
capitalized developed technology costs), legal, consulting,
insurance, professional and administration, and public relations
costs, a reserve and such other cost categories as reasonably
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determined by the Operating Committee to be included in the budget.
In accordance with the requirements under the CAT NMS Plan, the
Operating Committee approved an annual budget for 2024 for CAT LLC in
December 2023 (``Original 2024 Budget'').\28\ In August 2024, the
Operating Committee approved an updated budget for 2024 (``Updated 2024
Budget'').\29\ The Updated 2024 Budget includes actual costs for each
category for the months of January through July 2024, with estimated
costs for the remaining months of 2024. The Operating Committee also
approved the budgeted CAT costs for the CAT Fee 2024-1 Period (i.e.,
Budgeted CAT Costs 2024-1), which are a subset of the costs set forth
in the Updated 2024 Budget.
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\28\ The Original 2024 Budget is available on the CAT website
(https://www.catnmsplan.com/sites/default/files/2024-07/07.09.2024-CAT%20LLC-2024-Financial-and-Operating-Budget.pdf).
\29\ The Updated 2024 Budget is available on the CAT website
(https://www.catnmsplan.com/sites/default/files/2024-08/07.31.24-CAT-LLC-2024-Financial_and_Operating-Budget.pdf).
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As described in detail below, the Budgeted CAT Costs 2024-1 would
be $138,476,925. CEBBs collectively will be responsible for one-third
of the Budged CAT Costs 2024-1 (which is $46,158,975), and CEBSs
collectively will be responsible for one-third of Budgeted CAT Costs
2024-1 (which is $46,158,975).
The following describes in detail Budgeted CAT Costs 2024-1 for the
CAT Fee 2024-1 Period. The following cost details are provided in
accordance with the requirement in the CAT NMS Plan to provide in the
fee filing the following:
the budget for the upcoming year (or remainder of the year, as
applicable), including a brief description of each line item in the
budget, including (1) technology line items of cloud hosting
services, operating fees, CAIS operating fees, change request fees
and capitalized developed technology costs, (2) legal, (3)
consulting, (4) insurance, (5) professional and administration and
(6) public relations costs, a reserve and/or such other categories
as reasonably determined by the Operating Committee to be included
in the budget, and the reason for changes in each such line item
from the prior CAT fee filing.\30\
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\30\ Section 11.3(a)(iii)(B) of the CAT NMS Plan.
Each of the costs described below are reasonable, appropriate and
necessary for the creation, implementation and maintenance of CAT.
The following table breaks down Budgeted CAT Costs 2024-1 into the
categories set forth in Section 11.3(a)(iii)(B) of the CAT NMS
Plan.\31\
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\31\ Note that costs and related cost calculations provided in
this filing may reflect minor variations from the budgeted costs due
to rounding.
------------------------------------------------------------------------
Budgeted CAT
Budget category costs 2024-1 \*\
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Capitalized Developed Technology Costs \**\.......... $4,101,990
Technology Costs:.................................... 99,728,258
Cloud Hosting Services........................... 76,278,426
Operating Fees................................... 14,008,947.50
CAIS Operating Fees.............................. 9,278,384.50
Change Request Fees.............................. 162,500
Legal................................................ 4,484,554.50
Consulting........................................... 652,623
Insurance............................................ 1,342,345
Professional and administration...................... 428,544.50
Public relations..................................... 43,225
------------------
Subtotal......................................... 110,781,540
Reserve.............................................. 27,695,385
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[[Page 72059]]
Total Budgeted CAT Costs 2024-1.................. 138,476,925
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* Budgeted CAT Costs 2024-1 described in this table of costs were
determined based an analysis of a variety of factors, including
historical costs/invoices, estimated costs from respective vendors/
service providers, contractual terms with vendors/service providers,
anticipated service levels and needs, and discussions with vendors and
Participants.
** The non-cash amortization of these capitalized developed technology
costs to be incurred during the CAT Fee 2024-1 Period have been
appropriately excluded from the above table.\32\
To the extent that CAT LLC enters into notes with Participants or
others to pay costs incurred during the period from July 16, 2024
through December 31, 2024, CAT LLC will use the proceeds from the CAT
Fee 2024-1 and the related Participant CAT fees to repay such notes.
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\32\ With respect to certain costs that were ``appropriately
excluded,'' such excluded costs relate to the amortization of
capitalized technology costs, which are amortized over the life of
the Plan Processor Agreement. As such costs have already been
otherwise reflected in the filing, their inclusion would double
count the capitalized technology costs. In addition, amortization is
a non-cash expense.
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(i) Technology Costs--Cloud Hosting Services
(a) Description of Cloud Hosting Services Costs
Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
cloud hosting services costs set forth in the budget. The Operating
Committee approved an operating budget for the CAT pursuant to Section
11.1(a) of the CAT NMS Plan that included $76,278,426 in technology
costs for cloud hosting services for the CAT Fee 2024-1 Period. The
technology costs for cloud hosting services represent costs reasonably
budgeted to be incurred for services provided by the cloud services
provider for the CAT, Amazon Web Services, Inc. (``AWS''), during the
CAT Fee 2024-1 Period.
In the agreement between CAT LLC and the Plan Processor for the CAT
(``Plan Processor Agreement''), FINRA CAT, LLC (``FCAT''), AWS was
named as the subcontractor to provide cloud hosting services. Under the
Plan Processor Agreement, CAT LLC is required to pay FCAT the fees
incurred by the Plan Processor for cloud hosting services provided by
AWS as FCAT's subcontrator [sic] on a monthly basis for the cloud
hosting services, and FCAT, in turn, pays such fees to AWS. The fees
for cloud hosting services were negotiated by FCAT on an arm's length
basis with the goals of managing costs and receiving services required
to comply with the CAT NMS Plan and Rule 613, taking into consideration
a variety of factors, including the expected volume of data, the
breadth of services provided and market rates for similar services. It
is anticipated that AWS will provide a broad array of cloud hosting
services for the CAT, including data ingestion, data management, and
analytic tools during the CAT Fee 2024-1 Period. Services provided by
AWS include storage services, databases, compute services and other
services (such as networking, management tools and DevOps tools), as
well as various environments for CAT, such as development, performance
testing, test, and production environments. AWS will perform cloud
hosting services for both the CAT transaction database as well as the
CAT Customer and Account Information System (``CAIS'') during the CAT
Fee 2024-1 Period.
The cost for AWS cloud services for the CAT is a function of the
volume of CAT Data. The greater the amount of CAT Data, the greater the
cost of AWS services to CAT LLC. During the CAT 2024-1 Period, it is
expected that AWS will provide cloud hosting services for volumes of
CAT Data far in excess of the volume predictions set forth in the CAT
NMS Plan. The CAT NMS Plan states, when all CAT Reporters are
submitting their data to the CAT, it ``must be sized to receive[,]
process and load more than 58 billion records per day,'' \33\ and that
``[i]t is expected that the Central Repository will grow to more than
29 petabytes of raw, uncompressed data.'' \34\ In contrast with those
estimates, the Q1 2024 data volumes, which averaged 577 billion events
per day, were up 45% compared to Q1 2023, which averaged 399 billion
events per day, with peak volumes recorded on April 19, 2024 of 746
billion events. Even higher peak volumes were recorded in July and
August 2024.
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\33\ Appendix D-4 of the CAT NMS Plan at n.262.
\34\ Appendix D-5 of the CAT NMS Plan.
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CAT LLC estimates that the budget for cloud hosting services costs
during the CAT Fee 2024-1 Period will be approximately $76,278,426. The
budget for cloud hosting services costs during the CAT Fee 2024-1
Period is calculated based on the Updated 2024 Budget. Specifically,
this estimate was calculated by adding the budgeted amounts for cloud
hosting services costs for the third and fourth quarter of 2024 as set
forth in the Updated 2024 Budget and subtracting one half of the cloud
hosting services costs incurred in July 2024 (as CAT Fee 2024-1 Period
began half way through July, on July 16, 2024).\35\
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\35\ This calculation is ($38,132,441 + $43,919,730) -
$5,773,745 = $76,278,426.
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CAT LLC estimated the budget for the cost for cloud hosting
services for the CAT Fee 2024-1 Period based on an assumption of 30%
annual year-over-year volume growth for the transaction database and an
assumption of 5% annual year-over-year volume growth for CAIS. CAT LLC
determined these growth assumptions in coordination with FCAT based on
an analysis of a variety of existing data and alternative growth
scenarios. In addition, the budget for cloud hosting services for the
CAT Fee 2024-1 Period includes a budget for the cost of re-processing
data as approved by the CAT Operating Committee.\36\ The budget for re-
processing data was based on expenditures for re-processing in prior
years. This process for estimating the budget for cloud hosting
services costs for the CAT Fee 2024-1 Period is the same process by
which CAT LLC estimated the cloud hosting services costs for the
Original 2024 Budget. The Original 2024 Budget estimated a budget for
cloud hosting services of $71,384,109 for the first two quarters of
2024.\37\ The actual costs for cloud hosting services for the first two
quarters of 2024, which are set forth in the Updated 2024 Budget, were
$66,737,810.\38\ There is only an approximate 7% difference between the
estimate and actuals for cloud hosting services costs. Accordingly, CAT
LLC believes that the process for estimating the budgeted cloud hosting
services
[[Page 72060]]
costs for the CAT Fee 2024-1 Period is reasonable.
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\36\ Appendix D-19 of the CAT NMS Plan states that ``[i]f
corrections are received after T+5, Participants' regulatory staff
and the SEC must be notified and informed as to how re-processing
will be completed. The Operating Committee will be involved with
decisions on how to re-process the data; however, this does not
relieve the Plan Processor of notifying the Participants' regulatory
staff and the SEC.''
\37\ This calculation is $33,217,468 + $38,166,641 =
$71,384,109.
\38\ This calculation is $30,343,917 + $36,393,893 =
$66,737,810.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for cloud hosting services costs from the prior CAT Fee
filing. CAT LLC's proposed annual budget for cloud hosting services
costs for 2024 decreased about 3.5% from the Original 2024 Budget to
the Updated 2024 Budget, from $154,624,108 to $148,789,981. Although
there were expected cost increases related to data volume growth and
the associated compute and storage of the increased data levels, as
well as from additional capacity for OTQT systems that were added to
meet the performance standards set forth in the requirements of the
recent SEC exemptive order from November 2023,\39\ these cost increases
were offset by a variety of cost reduction efforts related to compute
efficiencies, the implementation of single pass linker related to
options quotes, and the implementation of compute and other
efficiencies related to CAIS. Without such cost management efforts, the
budgeted costs for cloud hosting services would have increased by
approximately 15%, rather than decreased. Correspondingly, the proposed
budget for cloud hosting services costs for the third and fourth
quarters of 2024 did not change in a material way from the Original
2024 Budget to the Updated 2024 Budget. There was only an approximate
1% decrease from $83,239,999 in the Original 2024 Budget \40\ to
$82,052,171 in the Updated 2024 Budget for the third and fourth
quarters of 2024.\41\
---------------------------------------------------------------------------
\39\ Securities Exchange Act Rel. No. 98848 (Nov. 2, 2023), 88
FR 77128 (Nov. 8, 2023).
\40\ This calculation is $39,961,511 + $43,278,488 =
$83,239,999.
\41\ This calculation is $38,132,441 + $43,919,730 =
$82,052,171.
---------------------------------------------------------------------------
(ii) Technology Costs--Operating Fees
(a) Description of Operating Fees
Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
operating fees set forth in the budget. The Operating Committee
approved an operating budget for the CAT pursuant to Section 11.1(a) of
the CAT NMS Plan that included $14,008,947.50 in technology costs for
operating fees for the CAT Fee 2024-1 Period. Operating fees are those
fees paid by CAT LLC to FCAT as the Plan Processor to operate and
maintain the CAT and to perform business operations related to the
system, including compliance, security, testing, training,
communications with the industry (e.g., management of the FINRA CAT
Helpdesk, FAQs, website and webinars) and program management as
required by the CAT NMS Plan. Operating fees also include market data
provider costs, as discussed below.
Plan Processor: FCAT. Under the Plan Processor Agreement with FCAT,
CAT LLC is required to pay FCAT a negotiated monthly fixed price for
the operation of the CAT. This fixed price contract was negotiated on
an arm's length basis with the goals of managing costs and receiving
services required to comply with the CAT NMS Plan and Rule 613, taking
into consideration a variety of factors, including the breadth of
services provided and market rates for similar types of activity. It is
anticipated that FCAT will provide a variety of services to the CAT
during the CAT Fee 2024-1 Period, including the following:
Provide the CAT-related functions and services as the Plan
Processor as required by SEC Rule 613 and the CAT NMS Plan in
connection with the operation and maintenance of the CAT;
Address compliance items, including drafting CAT policies
and procedures, and addressing Regulation SCI requirements;
Provide support to the Operating Committee, the Compliance
Subcommittee and CAT working groups;
Assist with interpretive efforts and exemptive requests
regarding the CAT NMS Plan;
Oversee the security of the CAT;
Monitor the operation of the CAT, including with regard to
Participant and Industry Member reporting;
Provide support to subcontractors under the Plan Processor
Agreement;
Provide support in discussions with the Participants and
the SEC and its staff;
Operate the FINRA CAT Helpdesk;
Facilitate communications with the industry, including via
FAQs, CAT Alerts, meetings, presentations and webinars;
Administer the CAT website and all of its content;
Maintain cyber security insurance related to the CAT; and
Provide technical support and assistance with
connectivity, data access, and user support, including the use of CAT
Data and query tools, for Participants and the SEC staff.
CAT LLC calcuated [sic] the budget for the FCAT technology costs
for operating fees for the CAT Fee 2024-1 Period based on the recurring
monthly operating fees under the Plan Processor Agreement.
Market Data Provider: Exegy. It is anticipated that the operating
fees costs for the CAT Fee 2024-1 Period will include costs related to
the receipt of certain market data for the CAT pursuant to an agreement
between FCAT and Exegy Incorporated (``Exegy''). CAT LLC determined
that Exegy would provide market data that included all data elements
required by the CAT NMS Plan,\42\ and that the fees were reasonable and
in line with market rates for the market data received. All costs under
the contract would be treated as a direct pass through cost to CAT LLC.
CAT LLC estimated the budget for the costs for Exegy for the CAT Fee
2024-1 Period based on the monthly rate set forth in the agreement
between Exegy and FCAT.
---------------------------------------------------------------------------
\42\ See Section 6.5(a)(ii) of the CAT NMS Plan.
---------------------------------------------------------------------------
Operating Fee Estimates. CAT LLC estimates that the budget for
operating fees during the CAT Fee 2024-1 Period will be approximately
$14,008,947.50. The budget for operating fees during the CAT Fee 2024-1
Period is calculated based on the Updated 2024 Budget. Specifically,
this estimate was calculated by adding the budgeted amounts for
operating fees for the third and fourth quarter of 2024 as set forth in
the Updated 2024 Budget and subtracting one half of the actual
operating fees incurred in July 2024 (as CAT Fee 2024-1 Period began
half way through July, on July 16, 2024).\43\
---------------------------------------------------------------------------
\43\ This calculation is ($6,907,383 + $904,664) + ($6,907,383 +
$440,748) - $1,151,230.50 = $14,008,947.5.
---------------------------------------------------------------------------
As discussed above, CAT LLC estimated the budget for the operating
fees during the CAT Fee 2024-1 Period based on monthly rates set forth
in the Plan Processor Agreement and the agreement with Exegy. CAT LLC
also recognized that the operating fees are generally consistent
throughout the year. This process for estimating the budget for the
operating fees for the CAT Fee 2024-1 Period is the same process by
which CAT LLC estimated the operating fees for the Original 2024
Budget. The Original 2024 Budget estimated a budget for operating fees
of $13,558,875 for the first two quarters of 2024.\44\ The actual costs
for operating fees for the first two quarters of 2024, which are set
forth in the Updated 2024 Budget, were $12,608,540.\45\ There was an
approximate 7% decrease from
[[Page 72061]]
estimates to actuals for the first two quarters. Accordingly, CAT LLC
believes that the process for estimating the budgeted operating fees
for the CAT Fee 2024-1 Period is reasonable.
---------------------------------------------------------------------------
\44\ This calculation is $6,726,747 + $6,832,128 = $13,558,875.
\45\ This calculation is $6,702,506 + $5,906,034 = $12,608,540.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for operating fees from the prior CAT Fee filing. As this
is the first Prospective CAT Fee Filing, this filing describes the
changes in the operating fees from the Original 2024 Budget. CAT LLC's
proposed annual budget for operating fees for 2024 increased from
$27,223,132 to $27,768,718 \46\ from the Original 2024 Budget to the
Updated 2024 Budget, and the proposed budget for operating fees for the
third and fourth quarters of 2024 increased from $13,664,256 in the
Original 2024 Budget \47\ to $15,160,178 in the Updated 2024
Budget.\48\ This increase is due to a cyber insurance adjustment.
---------------------------------------------------------------------------
\46\ This calculation is $26,423,306 + $1,345,412 = $27,768,718.
\47\ This calculation is $6,832,128 + $6,832,128 = $13,664,256.
\48\ This calculation is ($6,907,383 + $904,664) + ($6,907,383 +
$440,748) = $15,160,178.
---------------------------------------------------------------------------
(iii) Technology Costs--CAIS Operating Fees
(a) Description of CAIS Operating Fees
Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
CAIS operating fees set forth in the budget. The Operating Committee
approved an operating budget for the CAT pursuant to Section 11.1(a) of
the CAT NMS Plan that included $9,278,384.50 in technology costs for
CAIS operating fees for the CAT Fee 2024-1 Period. CAIS operating fees
represent the fees paid to FCAT for services provided with regard to
the operation and maintenance of CAIS, and to perform the business
operations related to the system, including compliance, security,
testing, training, communications with the industry (e.g., management
of the FINRA CAT Helpdesk, FAQs, website and webinars) and program
management. The CAT is required under the CAT NMS Plan to capture and
store Customer Identifying Information and Customer Account Information
in a database separate from the transactional database and to create a
CAT-Customer-ID for each Customer. As of May 31, 2024, the
implementation of CAIS was completed.\49\
---------------------------------------------------------------------------
\49\ For a discussion of the implementation timeline for CAIS,
see CAT Alert 2023-01.
---------------------------------------------------------------------------
During the CAT Fee 2024-1 Period, it is anticipated that FCAT will
provide CAIS-related services. Under the Plan Processor Agreement with
FCAT, CAT LLC is required to pay FCAT for CAIS-related services
provided by FCAT on a monthly basis. CAT LLC negotiated the fees for
FCAT's CAIS-related services on an arm's length basis with the goals of
managing costs and receiving services required to comply with the CAT
NMS Plan, taking into consideration a variety of factors, including the
services to be provided and market rates for similar types of activity.
During the CAT Fee 2024-1 Period, it is anticipated that FCAT will
continue to provide services relating to the ongoing operation,
maintenance and support of CAIS.
CAT LLC estimates that the budget for CAIS operating fees during
the CAT Fee 2024-1 Period will be approximately $9,278,384.50. The
budget for CAIS operating fees during the CAT Fee 2024-1 Period is
calculated based on the Updated 2024 Budget. Specifically, this
estimate was calculated by adding the budgeted amounts for CAIS
operating fees for the third and fourth quarter of 2024 as set forth in
the Updated 2024 Budget and subtracting one half of the actual CAIS
operating fees costs incurred in July 2024 (as CAT Fee 2024-1 Period
began half way through July, on July 16, 2024).\50\
---------------------------------------------------------------------------
\50\ This calculation is ($5,060,937 + $5,060,937) - $843,489.50
= $9,278,384.50.
---------------------------------------------------------------------------
CAT LLC calculated the budget for FCAT's CAIS-related services for
the CAT Fee 2024-1 Period based on the recurring monthly CAIS operating
fees under the Plan Processor Agreement. This process for estimating
the budget for the CAIS operating fees for the CAT Fee 2024-1 Period is
the same process by which CAT LLC estimated the CAIS operating fees for
the Original 2024 Budget. The Original 2024 Budget estimated a budget
for CAIS operating fees of $10,418,666 for the first two quarters of
2024.\51\ The actual costs for CAIS operating fees for the first two
quarters of 2024, which are set forth in the Updated 2024 Budget, were
$10,078,045.\52\ There is only an approximate 3% difference between the
estimate and actuals. Accordingly, CAT LLC believes that the process
for estimating the budgeted CAIS operating fees for the CAT Fee 2024-1
Period is reasonable.
---------------------------------------------------------------------------
\51\ This calculation is $5,282,128 + $5,136,538 = $10,418,666.
\52\ This calculation is $5,017,108 + $5,060,937 = $10,078,045.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for CAIS operating fees from the prior CAT Fee filing. As
this is the first Prospective CAT Fee Filing, this filing describes the
changes in the CAIS operating fees from the Original 2024 Budget. CAT
LLC's proposed annual budget for CAIS operating fees for 2024 had a
small 2% percent decrease of $491,821 from the Original 2024 Budget to
the Updated 2024 Budget, from $20,691,740 to $20,199,919.
Correspondingly, the proposed budget for CAIS operating fees for the
third and fourth quarters of 2024 had a small 1% percentage decrease of
$151,202, from $10,273,076 in the Original 2024 Budget \53\ to
$10,121,874 in the Updated 2024 Budget.\54\
---------------------------------------------------------------------------
\53\ This calculation is $5,136,538 + $5,136,538 = $10,273,076.
\54\ This calculation is $5,060,937 + $5,060,937 = $10,121,874.
---------------------------------------------------------------------------
(iv) Technology Costs--Change Request Fees
(a) Description of Change Request Fees
Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
change request fees set forth in the budget. The Operating Committee
approved an operating budget for the CAT pursuant to Section 11.1(a) of
the CAT NMS Plan that included $162,500 in technology costs for change
request fees for the CAT Fee 2024-1 Period. The technology costs
related to change request fees include costs related to certain
modifications, upgrades or other changes to the CAT.
Change requests are standard practice and necessary to reflect
operational changes, including changes related to new market
developments, such as new market participants. In general, if CAT LLC
determines that a modification, upgrade or other changes to the
functionality or service is necessary and appropriate, CAT LLC will
submit a request for such a change to the Plan Processor. The Plan
Processor will then respond to the request with a proposal for
implementing the change, including the cost (if any) of such a change.
CAT LLC then determines whether to approve the proposed change.
During the CAT Fee 2024-1 Period, it is anticipated that CAT LLC
will engage FCAT to pursue certain change requests in accordance with
the Plan Processor Agreement. The budget for change requests for the
CAT Fee 2024-1 Period includes a placeholder of $162,500 for potential
change request fees that may be necessary in accordance with the Plan
Processor Agreement. The placeholder amount was determined
[[Page 72062]]
based on prior experience with change requests related to the CAT.
CAT LLC estimates that the budget for change requests during the
CAT Fee 2024-1 Period will be approximately $162,500. The budget for
change requests during the CAT Fee 2024-1 Period is calculated based on
the Updated 2024 Budget. Specifically, this estimate was calculated by
adding the budgeted amounts for the change requests for the third and
fourth quarter of 2024 as set forth in the Updated 2024 Budget and
subtracting one half of the actual change request costs incurred in
July 2024 (as CAT Fee 2024-1 Period began half way through July, on
July 16, 2024).\55\
---------------------------------------------------------------------------
\55\ This calculation is ($0 + $162,500) - $0 = $162,500.
---------------------------------------------------------------------------
CAT LLC estimated the budget for the potential change requests for
the CAT Fee 2024-1 Period based on, among other things, a review of
past change requests and potential future change request needs, as well
as discussions with FCAT. This process for estimating the budget for
the change requests for the CAT Fee 2024-1 Period is the same process
by which CAT LLC estimated the change requests cost for the Original
2024 Budget. The Original 2024 Budget estimated a change request budget
of $81,250 for the the [sic] first two quarters of 2024.\56\ The actual
costs for change requests for the first two quarters of 2024, which are
set forth in the Updated 2024 Budget, were $0. Although the budget
exceeded the actual costs of change requests during the first two
quarters of 2024, CAT LLC believes that the process for estimating a
placeholder amount for potential change requests is reasonable given
the evolving technology needs of the CAT.
---------------------------------------------------------------------------
\56\ This calculation is $0 + $81,250 = $81,250.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for change request fees from the prior CAT Fee filing. As
this is the first Prospective CAT Fee Filing, this filing describes the
changes in the change request fees from the Original 2024 Budget. CAT
LLC's proposed annual budget for change requests for 2024 decreased by
$81,250 from the Original 2024 Budget to the Updated 2024 Budget, from
$243,750 to $162,500. CAT LLC has reduced the annual budget for a
placeholder for change request fees for 2024 by one-third, as time has
passed without additional change requests anticipated by this
placeholder amount. Correspondingly, the proposed budget for change
requests for the third and fourth quarters remained the same at
$162,500 for the Original 2024 Budget \57\ and the Updated 2024
Budget.\58\
---------------------------------------------------------------------------
\57\ This calculation is $81,250 + $81,250 = $162,500.
\58\ This calculation is $0 + $162,500 = $162,500.
---------------------------------------------------------------------------
(v) Technology Costs--Capitalized Developed Technology Costs
(a) Description of Capitalized Developed Technology Costs
Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
capitalized developed technology costs set forth in the budget. The
Operating Committee approved an operating budget for the CAT pursuant
to Section 11.1(a) of the CAT NMS Plan that includes $4,101,990 in
technology costs for capitalized developed technology costs for the CAT
Fee 2024-1 Period. This category of costs includes the budget for
capitalizable application development costs incurred in the development
of the CAT. It is anticipated that such costs will include certain
costs related to the software license fee for CAIS in accordance with
the Plan Processor Agreement with FCAT, as well as costs related to a
set of technology changes to be implemented by FCAT.
CAT LLC estimates that the budget for capitalized developed
technology costs during the CAT Fee 2024-1 Period will be approximately
$4,101,990. The budget for capitalized developed technology costs
during the CAT Fee 2024-1 Period is calculated based on the Updated
2024 Budget. Specifically, this estimate was calculated by adding the
budgeted amounts for capitalized developed technology costs for the
third and fourth quarter of 2024 as set forth in the Updated 2024
Budget and subtracting one half of the actual capitalized developed
technology costs incurred in July 2024 (as CAT Fee 2024-1 Period began
half way through July, on July 16, 2024).\59\
---------------------------------------------------------------------------
\59\ This calculation is ($3,810,990 + $291,000) - $0 =
$4,101,990.
---------------------------------------------------------------------------
CAT LLC estimated the budget for capitalized developed technology
costs for the CAT Fee 2024-1 Period based on an analysis of a variety
of factors, including information related to potential technology costs
and related contractual and Plan requirements, and discussions with
FCAT regarding such potential technology costs. The Original 2024
Budget estimated a budget for capitalized developed technology costs of
$2,300,000 for the first two quarters of 2024.\60\ The actual costs for
capitalized developed technology costs for the first two quarters of
2024, which are set forth in the Updated 2024 Budget, were
$3,659,490.\61\ The increase was due to a software license fee for
CAIS. Accordingly, CAT LLC believes that the process for estimating the
budgeted capitalized developed technology costs for the CAT Fee 2024-1
Period is reasonable.
---------------------------------------------------------------------------
\60\ This calculation is $2,300,000 + $0 = $2,300,000.
\61\ This calculation is $2,300,000 + $1,359,490 = $3,659,490.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for capitalized developed technology costs from the prior
CAT Fee filing. As this is the first Prospective CAT Fee Filing, this
filing describes the changes in capitalized developed technology costs
from the Original 2024 Budget. CAT LLC's proposed budget for
capitalized developed technology costs for 2024 increased from the
Original 2024 Budget to the Updated 2024 Budget. The annual budget for
capitalized developed technology costs for 2024 increased by $5,461,480
from the Original 2024 Budget of $2,300,000 to the Updated 2024 Budget
of $7,761,480.\62\ Correspondingly, the budget for capitalized
developed technology costs for the third and fourth quarters of 2024
increased from $0 \63\ in the Original 2024 Budget to $4,101,990 in the
Updated 2024 Budget.\64\ This increase in the capitalized developed
technology costs budget in the Updated 2024 Budget over the Original
2024 Budget was the result of costs related to the software license fee
for CAIS in accordance with the Plan Processor Agreement with FCAT, as
well as costs related to a set of technology changes to be implemented
by FCAT.
---------------------------------------------------------------------------
\62\ This calculation is $2,591,000 + $5,170,480 = $7,761,480.
\63\ This calculation is $0 + $0 = $0.
\64\ This calculation is $3,810,990 + $291,000 = $4,101,990.
---------------------------------------------------------------------------
(vi) Legal Costs
(a) Description of Legal Costs
Section 11.3(a)(iii)(B)(B)(2) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
legal costs set forth in the budget. The Operating Committee approved
an operating budget for the CAT pursuant to Section 11.1(a) of the CAT
NMS Plan that includes $4,484,554.50 in legal costs for the CAT Fee
2024-1 Period. This category of
[[Page 72063]]
costs represents budgeted costs for legal services for this period. CAT
LLC anticipates that it will receive legal services from two law firms,
Wilmer Cutler Pickering Hale and Dorr LLP (``WilmerHale'') and Jenner &
Block LLP (``Jenner''), during the CAT Fee 2024-1 Period.
Law Firm: WilmerHale. It is anticipated that legal costs during the
CAT Fee 2024-1 Period will include costs related to the legal services
performed by WilmerHale. CAT LLC anticipates that it will continue to
employ WilmerHale during the CAT Fee 2024-1 Period based on, among
other things, their expertise, long history with the project and
recognition that the hourly fee rates for this law firm are anticipated
to be in line with market rates for specialized legal expertise.
WilmerHale's billing rates are negotiated on an annual basis and are
determined with reference to the rates charged by other leading law
firms for similar work. The Participants assess WilmerHale's
performance and review prospective budgets and staffing plans submitted
by WilmerHale on an annual basis. The legal fees will be paid by CAT
LLC to WilmerHale.
During the CAT Fee 2024-1 Period, it is anticipated that WilmerHale
will provide legal services related to the following:
Assist with CAT fee filings and related funding issues;
Draft exemptive requests from CAT NMS Plan requirements
and/or proposed amendments to the CAT NMS Plan;
Provide legal interpretations of CAT NMS Plan
requirements;
Provide legal support for the Operating Committee,
Compliance Subcommittee, working groups and Leadership Team;
Draft SRO rule filings related to the CAT Compliance Rule;
Manage corporate governance matters, including supporting
Operating Committee meetings and preparing resolutions and consents;
Assist with communications with the industry, including
CAT Alerts and presentations;
Provide guidance regarding the confidentiality of CAT
Data;
Assist with cost management analyses and proposals;
Assist with commercial contract-related matters, including
change orders, Plan Processor Agreement items, and subcontract matters;
Provide support with regard to discussions with the SEC
and its staff, including with respect to addressing interpretive and
implementation issues;
Assist with CAT budget and FCAT costs;
Assist other counsel for CAT on litigation-related
matters; and
Assist with legal responses related to third-party data
requests.
CAT LLC estimated the budget for the legal costs for WilmerHale for
the CAT Fee 2024-1 Period through an analysis of a variety of factors,
including WilmerHale fee rates, historical legal fees, information
related to pending legal issues and potential future legal issues, and
discussions with WilmerHale.
Law Firm: Jenner. It is anticipated that legal costs during the CAT
Fee 2024-1 Period will include costs related to the legal services
performed by Jenner. CAT LLC anticipates that it will continue to
employ Jenner during the CAT Fee 2024-1 Period based on among other
things, their expertise, history with the project and recognition that
their hourly fee rates are in line with market rates for specialized
legal expertise. The legal fees will be paid by CAT LLC to Jenner.
During the CAT Fee 2024-1 Period, it is anticipated that Jenner
will continue to provide legal assistance to CAT LLC regarding certain
litigation matters, including: (1) CAT LLC's defense against a lawsuit
filed in the Western District of Texas against Chair Gensler, the SEC
and CAT LLC challenging the validity of the Rule 613 and the CAT and
alleging various constitutional, statutory, and common law claims
(``Texas Litigation''); \65\ (2) CAT LLC's intervention in a lawsuit in
the Eleventh Circuit filed by various parties against the SEC
challenging the SEC's approval of the CAT Funding Model; \66\ and (3) a
lawsuit in the Eleventh Circuit filed by Citadel Securities LLC seeking
review of the SEC's May 20, 2024 order \67\ granting the Participants
temporary conditional exemptive relief related to the reporting of bids
and/or offers made in response to a request for quote or other form of
solicitation response provided in standard electronic format that is
not immediately actionable.\68\ Litigation involving CAT LLC is an
expense of operating the CAT, and, therefore, is appropriately an
obligation of both Participants and Industry Members under the CAT
Funding Model.
---------------------------------------------------------------------------
\65\ American Securities Ass'n v. Securities and Exchange
Commission, Case No. 23-13396 (11th Cir.).
\66\ Davidson v. Gensler, Case No. 6:24-cv-197 (W.D. Tex.).
\67\ Securities Exchange Act Rel. No. 100181 (May 20, 2024), 89
FR 45715 (May 23, 2024).
\68\ Citadel Securities LLC v. United States Securities and
Exchange Commission, Case No. 24-12300 (11th Cir.).
---------------------------------------------------------------------------
CAT LLC estimated the budget for the legal costs for Jenner for the
CAT Fee 2024-1 Period through an analysis of a variety of factors,
including Jenner fee rates, historical legal fees, and information
related to pending legal issues and potential future legal issues, and
discussions with Jenner.
Legal Cost Estimates. CAT LLC estimates that the budget for legal
services during the CAT Fee 2024-1 Period will be approximately
$4,484,554.50. The budget for legal services during the CAT Fee 2024-1
Period is calculated based on the Updated 2024 Budget. Specifically,
this estimate was calculated by adding the budgeted amounts for the
legal services for the third and fourth quarter of 2024 as set forth in
the Updated 2024 Budget and subtracting one half of the actual legal
costs incurred in July 2024 (as the CAT Fee 2024-1 Period began half
way through July, on July 16, 2024).\69\
---------------------------------------------------------------------------
\69\ This calculation is ($2,647,277 + $2,342,562) - $505,284.50
= $4,484,554.50.
---------------------------------------------------------------------------
CAT LLC estimated the budget for the legal services for the CAT Fee
2024-1 Period based on an analysis of a variety of factors, including
law firm fee rates, historical legal fees, and information related to
pending legal issues and potential future legal issues, and discussions
with the law firms. This process for estimating the budget for the
legal services for the CAT Fee 2024-1 Period is the same process by
which CAT LLC estimated the legal cost for the Original 2024 Budget.
The Original 2024 Budget estimated a budget for legal costs of
$2,440,000 for the first two quarters of 2024.\70\ The actual costs for
legal services for the first two quarters of 2024, which are set forth
in the Updated 2024 Budget, were $3,156,762.\71\ Although there is an
increase from the budgeted legal costs to the actual legal costs for
the first two quarters of 2024, such increase was due to unanticipated
issues that required additional legal efforts on behalf of CAT LLC that
developed after the budget was created. Such additional costs including
costs related to (1) the legal defense related to the Texas Litigation;
and (2) additional regulatory and corporate legal issues, including (a)
additional work for commercial contract-related matters, including
change orders, Plan Processor Agreement items, and subcontract matters;
(b) assistance regarding budget and FCAT costs; (c) assistance to other
counsel for CAT on litigation-related matters; and (d) assistance
related to CAT fee filings and CAT NMS Plan amendments. Accordingly,
CAT LLC believes that the process for estimating
[[Page 72064]]
the budgeted legal costs for the CAT Fee 2024-1 Period is reasonable.
---------------------------------------------------------------------------
\70\ This calculation is $1,220,000 + $1,220,000 = $ 2,440,000.
\71\ This calculation is $791,912 + $2,364,850 = $3,156,762.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for legal costs from the prior CAT Fee filing. As this is
the first Prospective CAT Fee Filing, this filing describes the changes
in the legal costs from the Original 2024 Budget. CAT LLC's proposed
budget for legal costs for 2024 increased from the Original 2024 Budget
to the Updated 2024 Budget. The annual budget for legal costs for 2024
increased from the Original 2024 Budget to the Updated 2024 Budget,
from $4,460,000 to $8,146,599. Correspondingly, the proposed budget for
legal costs for the third and fourth quarters increased from $2,020,000
\72\ in the Original 2024 Budget to $4,989,837 in the Updated 2024
Budget.\73\ This increase in the legal budget in the Updated 2024
Budget from the Original 2024 Budget was primarily due to unanticipated
legal costs, including costs related to (1) the legal defense related
to the Texas Litigation; and (2) additional regulatory and corporate
legal issues, including (a) additional work for commercial contract-
related matters, including change orders, Plan Processor Agreement
items, and subcontract matters; (b) assistance regarding budget and
FCAT costs; (c) assistance to other counsel for CAT on litigation-
related matters; and (d) assistance related to CAT fee filings and CAT
NMS Plan amendments. In addition, CAT LLC no longer anticipates
incurring legal costs related to the law firms of Pillsbury Winthrop
Shaw Pittman LLP and Covington & Burling LLP during the CAT Fee 2024-1
Period due to the conclusion of the relevant prior legal matters.
---------------------------------------------------------------------------
\72\ This calculation is $1,047,500 + $972,500 = $2,020,000.
\73\ This calculation is $2,647,277 + $2,342,560 = $4,989,837.
---------------------------------------------------------------------------
(vii) Consulting Costs
(a) Description of Consulting Costs
Section 11.3(a)(iii)(B)(B)(3) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
consulting costs set forth in the budget. The Operating Committee
approved an operating budget for the CAT pursuant to Section 11.1(a) of
the CAT NMS Plan that included $652,623 in consulting costs for the CAT
Fee 2024-1 Period. The consulting costs represent the fees estimated to
be paid to the consulting firm Deloitte & Touche LLP (``Deloitte'') as
project manager during the CAT Fee 2024-1 Period. These consulting
costs include costs for advisory services related to the operation of
the CAT, and meeting facilitation and communications coordination,
vendor support and financial analyses.
It is anticipated that the costs for CAT during CAT Fee 2024-1
Period will include costs related to consulting services performed by
Deloitte. CAT LLC anticipates that it will continue to employ Deloitte
during the CAT Fee 2024-1 Period based on, among other things, their
expertise, long history with the project, and the recognition that it
is anticipated that the consulting fees will remain in line with market
rates for this type of specialized consulting work. Deloitte's fee
rates are negotiated on an annual basis. CAT LLC assesses Deloitte's
performance and reviews prospective budgets and staffing plans
submitted by Deloitte on an annual basis. The consulting fees will be
paid by CAT LLC to Deloitte.
It is anticipated that Deloitte will provide a variety of
consulting services to the CAT during the CAT Fee 2024-1 Period,
including the following:
Implement program operations for the CAT project;
Provide support to the Operating Committee, the Chair of
the Operating Committee and the Leadership Team, including project
management support, coordination and planning for meetings and
communications, and interfacing with law firms and the SEC;
Assist with cost and funding matters for the CAT,
including assistance with loans and the CAT bank account for CAT
funding;
Provide support for updating the SEC on the progress of
the development of the CAT; and
Provide support for third party vendors for the CAT,
including FCAT, Anchin and the law firms engaged by CAT LLC.
In addition, the consulting costs include the compensation for the
Chair of the CAT Operating Committee.
CAT LLC estimates that the budet [sic] for consulting costs during
the CAT Fee 2024-1 Period will be approximately $652,623. The budget
for consulting costs during the CAT Fee 2024-1 Period is calculated
based on the Updated 2024 Budget. Specifically, this estimate was
calculated by adding the budgeted amounts for consulting services for
the third and fourth quarter of 2024 as set forth in the Updated 2024
Budget and subtracting one half of the actual consulting costs incurred
in July 2024 (as the CAT Fee 2024-1 Period begain [sic] half way
through July, on July 16, 2024).\74\
---------------------------------------------------------------------------
\74\ This calculation is ($359,926 + $354,495) - $61,798 =
$652,623.
---------------------------------------------------------------------------
CAT LLC estimates the budget for the consulting costs for Deloitte
for the CAT Fee 2024-1 Period based on the current statement of work
with Deloitte, which took into consideration past consulting costs,
potential future consulting needs, the proposed rates and other
contractual issues, as well as discussions with Deloitte. The Original
2024 Budget estimated a budget for consulting cost of $800,000 for the
first two quarters of 2024.\75\ The actual costs for consulting
services for the first two quarters of 2024, which are set forth in the
Updated 2024 Budget, were $885,580.\76\ There is only an approximate
10% difference between the estimate and actuals. Accordingly, CAT LLC
believes that the process for estimating the budgeted consulting costs
for the CAT Fee 2024-1 Period is reasonable.
---------------------------------------------------------------------------
\75\ This calculation is $400,000 + $400,000 = $800,000.
\76\ This calculation is $264,101 + $621,479 = $885,580.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for consulting costs from the prior CAT Fee filing. As
this is the first Prospective CAT Fee Filing, this filing describes the
changes in the consulting costs from the Original 2024 Budget. CAT
LLC's proposed annual budget for consulting costs for 2024 has not
changed from the Original 2024 Budget to the Updated 2024 Budget; it
remains $1,600,000. Correspondingly, the proposed budget for consulting
costs for the third and fourth quarters of 2024 decreased by $85,580
(which is approximately 11%), from $800,000 in the Original 2024 Budget
\77\ to $714,420 in the Updated 2024 Budget.\78\
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\77\ This calculation is $400,000 + $400,000 = $800,000.
\78\ This calculation is $359,925 + $354,495 = $714,420.
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(viii) Insurance Costs
(a) Description of Insurance Costs
Section 11.3(a)(iii)(B)(B)(4) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
insurance costs set forth in the budget. The Operating Committee
approved an operating budget for the CAT pursuant to Section 11.1(a) of
the CAT NMS Plan that included $1,342,345 in insurance costs for the
CAT Fee 2024-1 Period. The insurance costs represent the costs to be
[[Page 72065]]
incurred for insurance for CAT during the CAT Fee 2024-1 Period.
It is anticipated that the insurance costs for CAT during the CAT
Fee 2024-1 Period will include costs related to cyber security
liability insurance, directors' and officers' liability insurance, and
errors and omissions liability insurance brokered by USI Insurance
Services LLC (``USI''). Such policies are standard for corporate
entities, and cyber security liability insurance is important for the
CAT System. CAT LLC anticipates that it will continue to maintain this
insurance during CAT Fee 2024-1 Period, and notes that the annual
premiums for these policies were competitive for the coverage provided.
CAT LLC estimated the budget for the insurance costs for the CAT Fee
2024-1 Period based on the actual insurance quote from USI for 2024.
The annual premiums would be paid by CAT LLC to USI.\79\
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\79\ Note that CAT LLC generally pays its USI insurance premiums
once per year, and such payment is scheduled to occur during the
third quarter of 2024.
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(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for insurance costs from the prior CAT Fee filing. As
this is the first Prospective CAT Fee Filing, this filing describes the
changes in the insurance costs from the Original 2024 Budget. CAT LLC's
proposed annual budget for insurance costs for 2024 decreased by
$525,680 from the Original 2024 Budget, from $1,868,025 to $1,342,345.
For the Original 2024 Budget, CAT LLC estimated the budget for the
insurance costs for the CAT Fee 2024-1 Period based on the 2023
insurance premiums plus a 15% year-over-year increase. However, the
budgeted insurance costs as set forth in the Updated 2024 Budget were
based on the actual insurance quote from USI for 2024.
(ix) Professional and Administration Costs
(a) Description of Professional and Administration Costs
Section 11.3(a)(iii)(B)(B)(5) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
professional and administration costs set forth in the budget. The
Operating Committee approved an operating budget for the CAT pursuant
to Section 11.1(a) of the CAT NMS Plan that included $428,544.50 in
professional and administration costs for the CAT Fee 2024-1 Period. In
adopting the CAT NMS Plan, the Commission amended the Plan to add a
requirement that CAT LLC's financial statements be prepared in
compliance with GAAP, audited by an independent public accounting firm,
and made publicly available.\80\ The professional and administration
costs would include costs related to accounting and accounting advisory
services to support the operating and financial functions of CAT,
financial statement audit services by an independent accounting firm,
preparation of tax returns, and various cash management and treasury
functions. The professional and administration costs represent the fees
to be paid to Anchin Block & Anchin (``Anchin'') and Grant Thornton LLP
(``Grant Thornton'') for financial services during CAT Fee 2024-1
Period.
---------------------------------------------------------------------------
\80\ Section 9.2 of the CAT NMS Plan.
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Financial Advisory Firm: Anchin. It is anticipated that the
professional and administration costs for the CAT Fee 2024-1 Period
will include costs related to financial advisory services performed by
Anchin. CAT LLC anticipates that it will continue to employ Anchin
during CAT Fee 2024-1 Period based on, among other things, the firm's
relevant expertise and fees, which are anticipated to remain in line
with market rates for these financial advisory services. The fees for
these services will be paid by CAT LLC to Anchin.
It is anticipated that Anchin will provide a variety of services to
the CAT during the CAT Fee 2024-1 Period, including the following:
Update and maintain internal controls;
Provide cash management and treasury functions;
Faciliate [sic] bill payments;
Provide monthly bookkeeping;
Review vendor invoices and documentation in support of
cash disbursements;
Provide accounting research and consultations on various
accounting, financial reporting and tax matters;
Address not-for-profit tax and accounting considerations;
Prepare tax returns;
Address various accounting, financial reporting and
operating inquiries from Participants;
Develop and maintain annual operating and financial
budgets, including budget to actual fluctuation analyses;
Support compliance with the CAT NMS Plan;
Work with and provide support to the Operating Committee
and various CAT working groups;
Prepare monthly, quarterly and annual financial
statements;
Support the annual financial statement audits by an
independent auditor;
Review historical costs from inception;
Provide accounting and financial information in support of
SEC filings; and
Perform additional ad hoc accounting and financial
advisory services, as requested by CAT LLC.
CAT LLC estimated the annual budget for the costs for Anchin based
on historical costs adjusted for cost of living rate increases, and
projected incremental advisory and support services. The budgeted costs
for the CAT Fee 2024-1 Period are based on the estimated annual costs,
minus actual costs through June and estimated costs for July.
Accounting Firm: Grant Thornton. It is anticipated that the
professional and administration costs for the CAT Fee 2024-1 Period
will include costs related to accounting services performed by Grant
Thornton. CAT LLC anticipates that it will continue to employ Grant
Thornton during CAT Fee 2024-1 Period based on, among other things, the
firm's relevant expertise and fees, which are anticipated to remain in
line with market rates for these financial advisory services. It is
anticipated that Grant Thornton will continue to be engaged as an
independent accounting firm to complete the audit of CAT LLC's
financial statements, in accordance with the requirements of the CAT
NMS Plan. The fees for these services will be paid by CAT LLC to Grant
Thornton. CAT LLC estimated the budget for the accounting costs for
Grant Thornton for the CAT Fee 2024-1 Period based on the anticipated
hourly rates and the anticipated services plus an administrative fee.
Professional and Administration Cost Estimates. CAT LLC estimates
that the budget for professional and administration services during the
CAT Fee 2024-1 Period will be approximately $428,544.50. The budget for
professional and administration services during the CAT Fee 2024-1
Period is calculated based on the Updated 2024 Budget. Specifically,
this estimate was calculated by adding the budgeted amounts for the
professional and administration services for the third and fourth
quarter of 2024 as set forth in the Updated 2024 Budget and subtracting
one half of the actual professional and administration costs incurred
in July 2024 (as CAT Fee 2024-
[[Page 72066]]
1 Period began half way through July, on July 16, 2024).\81\
---------------------------------------------------------------------------
\81\ This calculation is ($157,269 + $293,682)-$22,406.50 =
$428,544.50.
---------------------------------------------------------------------------
CAT LLC estimated the budget for the professional and
administration costs for the CAT Fee 2024-1 Period based on a review of
past professional and administration costs, potential future
professional and administration needs, the proposed rates and other
contractual issues, as well as discussions with Anchin and Grant
Thornton. This process for estimating the budget for the professional
and administration costs for the CAT Fee 2024-1 Period is the same
process by which CAT LLC estimated the professional and administration
costs for the Original 2024 Budget. The Original 2024 Budget estimated
a budget for professional and administration costs of $395,930 for the
first two quarters of 2024.\82\ The actual costs for professional and
administration services for the first two quarters of 2024, which are
set forth in the Updated 2024 Budget, were $372,977.\83\ There is only
an approximate 6% difference between the estimate and actuals.
Accordingly, CAT LLC believes that the process for estimating the
budgeted professional and administration costs for the CAT Fee 2024-1
Period is reasonable.
---------------------------------------------------------------------------
\82\ This calculation is $213,600 + $182,330 = $395,930.
\83\ This calculation is $110,542 + $262,435 = $372,977.
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(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for professional and administration costs from the prior
CAT Fee filing. As this is the first Prospective CAT Fee Filing, this
filing describes the changes in the professional and administration
costs from the Original 2024 Budget. CAT LLC's proposed annual budget
for professional and administration costs for 2024 had a very minor
increase of $2,666 from the Original 2024 Budget, from $821,264 to
$823,930. CAT LLC's proposed annual budget for professional and
administration costs for 2024 has not changed in a material way for
Anchin and Grant Thornton costs. Correspondingly, the proposed budget
for professional and administration costs for the third and fourth
quarters of 2024 increased by $25,617 (which is approximately 6%), from
$425,334 in the Original 2024 Budget \84\ to $450,951 in the Updated
2024 Budget.\85\
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\84\ This calculation is $150,000 + $275,334 = $425,334.
\85\ This calculation is $157,269 + $293,682 = $450,951.
---------------------------------------------------------------------------
(x) Public Relations Costs
(a) Desription [sic] of Public Relations Costs
Section 11.3(a)(iii)(B)(B)(6) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
public relations costs set forth in the budget. The Operating Committee
approved an operating budget for the CAT pursuant to Section 11.1(a) of
the CAT NMS Plan that included $43,225 in public relations costs for
the CAT Fee 2024-1 Period. The public relations costs represent the
fees paid to a public relations firm for professional communications
services to CAT, including media relations consulting, strategy and
execution. By engaging a public relations firm, CAT LLC will be better
positioned to understand and address CAT matters to the benefit of all
market participants.
It is anticipated that the public relations costs for the CAT Fee
2024-1 Period will include costs related to the public relations
services performed by RF[verbar]Binder Partners Inc.
(``RF[verbar]Binder''). CAT LLC anticipates that it will continue to
employ RF[verbar]Binder during the CAT Fee 2024-1 Period based on,
among other things, the firm's relevant expertise, history with the
project, and fees, which are anticipated to remain in line with market
rates for these public relations services. It is anticipated that,
during the CAT Fee 2024-1 Period, RF[verbar]Binder will provide
services related to communications with the public regarding the CAT,
including monitoring developments related to the CAT (e.g.,
congressional efforts, public comments and reaction to proposals, press
coverage of the CAT), reporting such developments to CAT LLC, and
drafting and disseminating communications to the public regarding such
developments as well as reporting on developments related to the CAT
(e.g., amendments to the CAT NMS Plan). Public relations services are
important for various reasons, including monitoring comments made by
market participants about the CAT and understanding issues related to
the CAT discussed on the public record.
CAT LLC estimates that the budget for public relations services
during the CAT Fee 2024-1 Period will be approximately $43,225. The
budget for public relations services during the CAT Fee 2024-1 Period
is calculated based on the Updated 2024 Budget. Specifically, this
estimate was calculated by adding the budgeted amounts for the public
relations for the third and fourth quarter of 2024 as set forth in the
Updated 2024 Budget and subtracting one half of the actual public
relations costs incurred in July 2024 (as CAT Fee 2024-1 Period began
half way through July, on July 16, 2024).\86\ The fees for these
services will be paid by CAT LLC to RF[verbar]Binder.
---------------------------------------------------------------------------
\86\ This calculation is ($23,450 + $23,625)-$3,850 = $43,225.
---------------------------------------------------------------------------
CAT LLC estimated the budget for the public relations costs for the
CAT Fee 2024-1 Period based on a review of past public relations costs,
potential future public relations needs, the proposed rates and other
contractual issues, as well as discussions with RF[verbar]Binder. CAT
LLC also recognized that public relations costs are generally
consistent throughout the year. This process for estimating the budget
for the public relations costs for the CAT Fee 2024-1 Period is the
same process by which CAT LLC estimated the public relations costs for
the Original 2024 Budget. The Original 2024 Budget estimated a budget
for public relations costs of $46,200 for the the [sic] first two
quarters of 2024.\87\ The actual costs for public relations for the
first two quarters of 2024, which are set forth in the Updated 2024
Budget, were $46,200.\88\ They are the same. Accordingly, CAT LLC
believes that the process for estimating the budgeted public relations
costs for the CAT Fee 2024-1 Period is reasonable.
---------------------------------------------------------------------------
\87\ This calculation is $23,100 + $23,100 = $46,200.
\88\ This calculation is $23,100 + $23,100 = $46,200.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for public relations costs from the prior CAT Fee filing.
As this is the first Prospective CAT Fee Filing, this filing describes
the changes in the public relations costs from the Original 2024
Budget. CAT LLC's proposed annual budget for public relations costs for
2024 had a very minor increase of $875 from the Original 2024 Budget to
the Updated 2024 Budget, from $92,400 to $93,275. Correspondingly, the
proposed budget for public relations costs for the third and fourth
quarters of 2024 increased by $875, from $46,200 in the Original 2024
Budget \89\ to $47,075 in
[[Page 72067]]
the Updated 2024 Budget.\90\ The minor change was made to reflect
updated contractual terms.
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\89\ This calculation is $23,100 + $23,100 = $46,200.
\90\ This calculation is $23,450 + $23,625 = $47,075.
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(xi) Reserve
(a) Description of Reserve
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
reserve costs set forth in the budget. The Operating Committee approved
an operating budget for the CAT pursuant to Section 11.1(a) of the CAT
NMS Plan that includes $27,695,385 for a reserve for the CAT Fee 2024-1
Period. Section 11.1(a)(i) of the CAT NMS Plan states that the budget
shall include a reserve. Section 11.1(a)(ii) of the CAT NMS Plan
further describes the reserve as follows:
For the reserve referenced in paragraph (a)(i) of this Section,
the budget will include an amount reasonably necessary to allow the
Company to maintain a reserve of not more than 25% of the annual
budget. To the extent collected CAT fees exceed CAT costs, including
the reserve of 25% of the annual budget, such surplus shall be used
to offset future fees. For the avoidance of doubt, the Company will
only include an amount for the reserve in the annual budget if the
Company does not have a sufficient reserve (which shall be up to but
not more than 25% of the annual budget). For the avoidance of doubt,
the calculation of the amount of the reserve would exclude the
amount of the reserve from the budget.
In light of the fact that CAT LLC currently does not maintain any
reserve, CAT LLC determined to include a reserve in the amount of 25%
of Budgeted CAT Costs 2024-1 other than the reserve. Accordingly, the
reserve for the CAT Fee 2024-1 Period was calculated by multiplying the
Budgeted CAT Costs 2024-1 other than the reserve amount, which is
$110,781,540, by 25%.
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for a reserve from the prior CAT Fee filing. Prior to
July 16, 2024, all CAT costs were paid by the Participants via notes.
Accordingly, to date, CAT LLC has not maintained any reserve. With the
commencement of CAT Fees, CAT LLC proposes to include costs for a
reserve of $27,695,385 in Budgeted CAT Costs 2024-1.
(D) Projected Total Executed Equivalent Share Volume
The calculation of Fee Rate 2024-1 also requires the determination
of the projected total executed equivalent share volume of transactions
in Eligible Securities for the CAT Fee 2024-1 Period. Under the CAT NMS
Plan, the Operating Committee is required to ``reasonably determine the
projected total executed equivalent share volume of all transactions in
Eligible Securities for each relevant period based on the executed
equivalent share volume of all transactions in Eligible Securities for
the prior twelve months.'' \91\ The Operating Committee is required to
base its projection on the prior twelve months, but it may use its
discretion to analyze the likely volume for the upcoming year. Such
discretion would allow the Operating Committee to use its judgment when
estimating projected total executed equivalent share volume if the
volume over the prior twelve months was unusual or otherwise unfit to
serve as the basis of a future volume estimate.\92\
---------------------------------------------------------------------------
\91\ Section 11.3(a)(i)(D) of the CAT NMS Plan.
\92\ CAT Funding Model Approval Order at 62651.
---------------------------------------------------------------------------
The total executed equivalent share volume of transactions in
Eligible Securities for the 12-month period from June 2023 through May
2024 was 3,980,753,840,905.21 executed equivalent shares. The Operating
Committee has determined to calculate the projected total executed
equivalent share volume for a four-month recovery period for CAT Fee
2024-1 by multiplying by \4/12\ths the executed equivalent share volume
for the prior 12 months. The Operating Committee determined that such
an approach was reasonable as the CAT's annual executed equivalent
share volume has remained relatively constant. For example, the
executed equivalent share volume for 2021 was 3,963,697,612,395, the
executed equivalent share volume for 2022 was 4,039,821,841,560.31, and
the executed equivalent share volume for 2023 was 3,868,940,345,680.6.
Accordingly, the projected total executed equivalent share volume for
the four-month period for CAT Fee 2024-1 is projected to be
1,326,917,946,968.403 executed equivalent shares.\93\
---------------------------------------------------------------------------
\93\ This projection was calculated by multiplying
3,980,753,840,905.21 executed equivalent shares by \4/12\ths.
---------------------------------------------------------------------------
The projected total executed equivalent share volume of all
transactions in Eligible Securities for the four-month recovery period
for CAT Fee 2024-1 and a description of the calculation of the
projection is provided in this filing in accordance with the
requirement in the CAT NMS Plan to provide such information in a fee
filing for a CAT Fee.\94\
---------------------------------------------------------------------------
\94\ Section 11.3(a)(iii)(B) of the CAT NMS Plan.
---------------------------------------------------------------------------
(E) Fee Rate 2024-1
Fee Rate 2024-1 would be calculated by dividing Budgeted CAT Costs
2024-1 by the reasonably projected total executed equivalent share
volume of all transactions in Eligible Securities for the four-month
recovery period for CAT Fee 2024-1, as described in detail above.\95\
Specifically, Fee Rate 2024-1 would be calculated by dividing
$138,476,925 by 1,326,917,946,968.403 executed equivalent shares. As a
result, Fee Rate 2024-1 would be $0.0001043598251997246 per executed
equivalent share. Fee Rate 2024-1 is provided in this filing in
accordance with the requirement in the CAT NMS Plan to provide the Fee
Rate in a fee filing for a CAT Fee.\96\
---------------------------------------------------------------------------
\95\ In approving the CAT Funding Model, the Commission stated
that ``[t]he manner in which the Fee Rate for Prospective CAT Costs
will be calculated (i.e., by dividing the CAT costs reasonably
budgeted for the upcoming year by the reasonably projected total
executed equivalent share volume of all transactions in Eligible
Securities for the year) is reasonable.'' CAT Funding Model Approval
Order at 62651.
\96\ Section 11.3(a)(iii)(B) of the CAT NMS Plan.
---------------------------------------------------------------------------
(3) Monthly Fees
CEBBs and CEBSs would be required to pay fees for CAT Fee 2024-1 on
a monthly basis for four months, from November 2024 until February
2025.\97\ A CEBB's or CEBS's fee for each month would be calculated
based on the transactions in Eligible Securities executed by the CEBB
or CEBS from the prior month.\98\ Proposed paragraph (a)(3)(A) to the
Consolidated Audit Trail Funding Fees section of the Equities Price
List and the Options Fee Schedule would state that each CAT Executing
Broker would receive its first invoice for CAT Fee 2024-1 in October
2024, and would receive an invoice for CAT Fee 2024-1 each month
thereafter until January 2025. Proposed paragraph (a)(3)(B) to the
Consolidated Audit Trail Funding Fees section of the Equities Price
List and the Options Fee Schedule would state that ``Consolidated
Audited Trail, LLC shall provide each CAT Executing Broker with an
invoice for CAT Fee 2024-1 on a monthly basis.'' In addition, paragraph
(b)(1) would state that each CEBB and CEBS is required to pay its CAT
fees ``each month.''
---------------------------------------------------------------------------
\97\ See Section 11.3(a)(iii)(A) of the CAT NMS Plan.
\98\ See proposed paragraph (a)(3)(B) under Consolidated Audit
Trail Funding Fees on the Equities Price List and the Options Fee
Schedule.
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[[Page 72068]]
(4) Consolidated Audit Trail Funding Fees
To implement CAT Fee 2024-1, a ``Consolidated Audit Trail Funding
Fees'' section would be added to the Equities Price List and the
Options Fee Schedule, to include the proposed paragraphs described
below.
(A) Fee Schedule for CAT Fee 2024-1
The CAT NMS Plan states that:
Each Industry Member that is the CAT Executing Broker for the
buyer in a transaction in Eligible Securities (``CAT Executing
Broker for the Buyer'' or ``CEBB'') and each Industry Member that is
the CAT Executing Broker for the seller in a transaction in Eligible
Securities (``CAT Executing Broker for the Seller'' or ``CEBS'')
will be required to pay a CAT Fee for each such transaction in in
Eligible Securities in the prior month based on CAT Data. The CEBB's
CAT Fee or CEBS's CAT Fee (as applicable) for each transaction in
Eligible Securities will be calculated by multiplying the number of
executed equivalent shares in the transaction by one-third and by
the Fee Rate reasonably determined pursuant to paragraph (a)(i) of
this Section 11.3.\99\
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\99\ Section 11.3(a)(iii)(A) of the CAT NMS Plan.
Accordingly, based on the factors discussed above, the Exchange
proposes to add paragraph (a)(3) to the Consolidated Audit Trail
Funding Fees section of the Equities Price List and the Options Fee
---------------------------------------------------------------------------
Schedule. Proposed paragraph (a)(3) would state the following:
(A) Each CAT Executing Broker shall receive its first invoice
for CAT Fee 2024-1 in October 2024, which shall set forth the CAT
Fee 2024-1 fees calculated based on transactions in September 2024,
and shall receive an invoice for CAT Fee 2024-1 for each month
thereafter until January 2025.
(B) Consolidated Audit Trail, LLC shall provide each CAT
Executing Broker with an invoice for CAT Fee 2024-1 on a monthly
basis. Each month, such invoices shall set forth a fee for each
transaction in Eligible Securities executed by the CAT Executing
Broker in its capacity as a CAT Executing Broker for the Buyer
(``CEBB'') and/or the CAT Executing Broker for the Seller (``CEBS'')
(as applicable) from the prior month as set forth in CAT Data. The
fee for each such transaction will be calculated by multiplying the
number of executed equivalent shares in the transaction by the fee
rate of $0.000035 per executed equivalent share.
(C) Notwithstanding the last invoice date of January 2025 for
CAT Fee 2024-1 in paragraph 3(A), CAT Fee 2024-1 shall continue in
effect after January 2025, with each CAT Executing Broker receiving
an invoice for CAT Fee 2024-1 each month, until a new subsequent CAT
Fee is in effect with regard to Industry Members in accordance with
Section 19(b) of the Exchange Act. Consolidated Audit Trail, LLC
will provide notice when CAT Fee 2024-1 will no longer be in effect.
(D) Each CAT Executing Broker shall be required to pay each
invoice for CAT Fee 2024-1 in accordance with paragraph (b).
As noted in the Plan amendment for the CAT Funding Model, ``[a]s a
practical matter, the fee filing would provide the exact fee per
executed equivalent share to be paid for the CAT Fees, by multiplying
the Fee Rate by one-third and describing the relevant number of decimal
places for the fee.'' \100\ Accordingly, proposed paragraph (a)(3)(B)
to the Consolidated Audit Trail Funding Fees section of the Equities
Price List and the Options Fee Schedule would set forth a fee rate of
$0.000035 per executed equivalent share. This fee rate is calculated by
multiplying Fee Rate 2024-1 of $0.0001043598251997246 by one-third, and
rounding the result to six decimal places.\101\ The Operating Committee
determined to use six decimal places to balance the accuracy of the
calculation with the potential systems and other impracticalities of
using additional decimal places in the calculation.
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\100\ CAT Funding Model Approval Order at 62658, n.658.
\101\ Dividing $0.0001043598251997246 by three equals
$0.00003478660839990821. Rounding $0.00003478660839990821 to six
decimal places equals $0.000035.
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The proposed language in paragraph (a)(3)(A) to the Consolidated
Audit Trail Funding Fees section of the Equities Price List and the
Options Fee Schedule would describe when CAT Executing Brokers would
receive their first monthly invoice for CAT Fee 2024-1. Specifically,
CAT Executing Brokers would receive their first monthly invoice for CAT
Fee 2024-1 in October 2024 and the fees set forth in that invoice would
be calculated based on transactions executed in September 2024. The
payment for the first invoice would be required within 30 days after
the receipt of the first invoice (unless a longer period is indicated),
as described in paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(3)(A) to the Consolidated Audit Trail
Funding Fees section of the Equities Price List and the Options Fee
Schedule also would describe the monthly cadence of the invoices for
CAT Fee 2024-1. Specifically, after the first invoices are provided to
CAT Executing Brokers in October 2024, invoices will be sent to CAT
Executing Brokers each month thereafter until January 2025.
Proposed paragraph (a)(3)(B) to the Consolidated Audit Trail
Funding Fees section of the Equities Price List and the Options Fee
Schedule would describe the invoices for CAT Fee 2024-1. Proposed
paragraph (a)(3)(B) to the Consolidated Audit Trail Funding Fees
section of the Equities Price List and the Options Fee Schedule would
state that ``Consolidated Audit Trail, LLC shall provide each CAT
Executing Broker with an invoice for CAT Fee 2024-1 on a monthly
basis.'' Proposed paragraph (a)(3)(B) to the Consolidated Audit Trail
Funding Fees section of the Equities Price List and the Options Fee
Schedule also would describe the fees to be set forth in the invoices
for CAT Fee 2024-1. Specifically, it would state that ``[e]ach month,
such invoices shall set forth a fee for each transaction in Eligible
Securities executed by the CAT Executing Broker in its capacity as a
CAT Executing Broker for the Buyer (`CEBB') and/or the CAT Executing
Broker for the Seller (`CEBS') (as applicable) from the prior month as
set forth in CAT Data. The fee for each such transaction will be
calculated by multiplying the number of executed equivalent shares in
the transaction by the fee rate of $0.000035 per executed equivalent
share.''
Since CAT Fee 2024-1 is a monthly fee based on actual transaction
volume from the prior month, CAT Fee 2024-1 may collect more or less
than two-thirds of Budgeted CAT Costs 2024-1. To the extent that CAT
Fee 2024-1 collects more than two-thirds of Budgeted CAT Costs 2024-1,
any excess money collected will be used to offset future fees and/or to
fund the reserve for the CAT. To the extent that CAT Fee 2024-1
collects less than two-thirds of Budgeted CAT Costs 2024-1, the budget
for the CAT in the ensuing months will reflect such shortfall.
Furthermore, proposed paragraph (a)(3)(C) to the Consolidated Audit
Trail Funding Fees section of the Equities Price List and the Options
Fee Schedule would describe how long CAT Fee 2024-1 would remain in
effect. It would state that ``[n]otwithstanding the last invoice date
of January 2025 for CAT Fee 2024-1 in paragraph 3(A), CAT Fee 2024-1
shall continue in effect after January 2025, with each CAT Executing
Broker receiving an invoice for CAT Fee 2024-1 each month, until a new
subsequent CAT Fee is in effect with regard to Industry Members in
accordance with Section 19(b) of the Exchange Act. Consolidated Audit
Trail, LLC will provide notice when CAT Fee 2024-1 will no longer be in
effect.''
Finally, proposed paragraph (a)(3)(D) to the Consolidated Audit
Trail Funding Fees section of the Equities Price List and the Options
Fee Schedule would set forth the requirement for the CAT Executing
Brokers to pay the invoices for CAT Fee 2024-1. It would state that
[[Page 72069]]
``[e]ach CAT Executing Broker shall be required to pay each invoice for
CAT Fee 2024-1 in accordance with paragraph (b).''
(B) Manner of Payment
The Exchange proposes to add paragraph (b)(1) to the Consolidated
Audit Trail Funding Fees section of the Equities Price List and the
Options Fee Schedule to describe the manner of payment of Industry
Member CAT fees. The CAT NMS Plan requires the Operating Committee to
establish a system for the collection of CAT fees.\102\ The Plan
Processor has established a billing system for CAT fees.\103\
Therefore, the Exchange proposes to require CAT Executing Brokers to
pay CAT Fee 2024-1 in accordance with such system. Accordingly,
proposed paragraph (b)(1) would state that ``[e]ach CAT Executing
Broker shall pay its CAT fees as required pursuant to paragraph (a)
each month to the Consolidated Audit Trail, LLC in the manner
prescribed by the Consolidated Audit Trail, LLC.''
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\102\ Section 11.4 of the CAT NMS Plan.
\103\ The billing process and system are described in CAT Alert
2023-02 as well as the CAT FAQs related to the billing of CAT fees,
the Industry Member CAT Reporter Portal User Guide, the FCAT
Industry Member Onboarding Guide, the FCAT Connectivity Supplement
for Industry Members and the CAT Billing Webinars (dated Sept. 28,
2023 and Nov. 7, 2023), each available on the CAT website.
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(C) Failure To Pay CAT Fees
The CAT NMS Plan further states that:
Participants shall require each Industry Member to pay all
applicable fees authorized under this Article XI within thirty (30)
days after receipt of an invoice or other notice indicating payment
is due (unless a longer payment period is otherwise indicated). If
an Industry Member fails to pay any such fee when due (as determined
in accordance with the preceding sentence), such Industry Member
shall pay interest on the outstanding balance from such due date
until such fee is paid at a per annum rate equal to the lesser of:
(a) the Prime Rate plus 300 basis points; or (b) the maximum rate
permitted by applicable law.\104\
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\104\ Section 11.4 of the CAT NMS Plan.
Accordingly, the Exchange proposes to add this requirement to the
Equities Price List and the Options Fee Schedule. Proposed paragraph
(b)(2) to the Consolidated Audit Trail Funding Fees section of the
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Equities Price List and the Options Fee Schedule would state:
Each CAT Executing Broker shall pay the CAT fees required
pursuant to paragraph (a) within thirty days after receipt of an
invoice or other notice indicating payment is due (unless a longer
payment period is otherwise indicated). If a CAT Executing Broker
fails to pay any such CAT fee when due, such CAT Executing Broker
shall pay interest on the outstanding balance from such due date
until such fee is paid at a per annum rate equal to the lesser of
(i) the Prime Rate plus 300 basis points, or (ii) the maximum rate
permitted by applicable law.
The requirements of paragraph (b)(2) would apply to CAT Fee 2024-1.
(5) CAT Fee Details
The CAT NMS Plan states that:
Details regarding the calculation of a Participant or CAT
Executing Broker's CAT Fees will be provided upon request to such
Participant or CAT Executing Broker. At a minimum, such details
would include each Participant or CAT Executing Broker's executed
equivalent share volume and corresponding fee by (1) Listed Options,
NMS Stocks and OTC Equity Securities, (2) by transactions executed
on each exchange and transactions executed otherwise than on an
exchange, and (3) by buy-side transactions and sell-side
transactions.\105\
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\105\ Section 11.3(a)(iv)(A) of the CAT NMS Plan.
Such information would provide CEBBs and CEBSs with the ability to
understand the details regarding the calculation of their CAT Fee.\106\
CAT LLC will provide CAT Executing Brokers with these details regarding
the calculation of their CAT Fees on their monthly invoice for the CAT
Fees.
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\106\ In approving the CAT Funding Model, the Commission stated
that, ``[i]n the Commission's view, providing CAT Execut[ing]
Brokers information regarding the calculation of their CAT Fees will
aid in transparency and permit CAT Execut[ing] Brokers to confirm
the accuracy of their invoices for CAT Fees.'' CAT Funding Model
Approval Order at 62667.
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In addition, CAT LLC will make certain aggregate statistics
regarding CAT Fees publicly available. Specifically, the CAT NMS Plan
states that, ``[f]or each CAT Fee, at a minimum, CAT LLC will make
publicly available the aggregate executed equivalent share volume and
corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC
Equity Securities, (2) by transactions executed on each exchange and
transactions executed otherwise than on an exchange, and (3) by buy-
side transactions and sell-side transactions.'' \107\ Such aggregate
statistics will be available on the CAT website.
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\107\ Section 11.3(a)(iv)(B) of the CAT NMS Plan. In approving
the CAT Funding Model, the Commission stated that ``[t]he
publication of the aggregate executed equivalent share volume and
aggregate fee is appropriate because it would allow Participants and
CAT Executing Brokers a high-level validation of executed volume and
fees.'' CAT Funding Model Approval Order at 62667.
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Furthermore, CAT LLC will make publicly available on the CAT
website the total amount invoiced each month that CAT Fee 2024-1 is in
effect as well as the total amount invoiced for CAT Fee 2024-1 for all
months since its commencement. CAT LLC also will make publicly
available on the CAT website the total costs to be collected from
Industry Members for CAT Fee 2024-1.
(6) Financial Accountability Milestones
The CAT NMS Plan states that ``[n]o Participant will make a filing
with the SEC pursuant to Section 19(b) of the Exchange Act regarding
any CAT Fee related to Prospective CAT Costs until the Financial
Accountability Milestone related to Period 4 described in Section 11.6
has been satisfied.'' \108\ The substantive requirements of the
Financial Accountability Milestones related to Period 4 have been
satisfied, as the CAT has completed the requirements for the ``Full
Implementation of CAT NMS Plan Requirements.'' Section 1.1 of the CAT
NMS Plan defines ``Full Implementation of CAT NMS Plan Requirements''
as:
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\108\ Section 11.3(a)(iii)(C) of the CAT NMS Plan.
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).
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability
Milestone is considered complete as of the date identified in the
Participants' Quarterly Progress Reports. As indicated by the
Participants' Quarterly Progress Report for the second and third
quarter of 2024,\109\ Full Implementation of CAT NMS Plan Requirements
was completed on July 15, 2024.
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\109\ Q2 & Q3 2024 Quarterly Progress Report (July 29, 2024).
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(A) Transaction Reporting and Regulatory Access
The CAT system functionality required by Rule 613 and the CAT NMS
[[Page 72070]]
Plan related to order and transaction data has been developed,
successfully tested, and fully implemented, including the requirements
related to regulatory access. The implementation of CAT requirements
related to order and transaction data occurred over four phases: Phases
2a, 2b, 2c and 2d.\110\ As described in the Quarterly Progress Reports
and summarized below, each of these phases has been fully
implemented.\111\
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\110\ The SEC granted exemptive relief from certain provisions
of the CAT NMS Plan to allow for the phased implementation of
Industry Member reporting via five phases addressing the reporting
requirements for Phase 2a Industry Member Data, Phase 2b Industry
Member Data, Phase 2c Industry Member Data, Phase 2d Industry Member
Data and Phase 2e Industry Member Data. Securities Exchange Rel. No.
88702 (Apr. 20, 2020), 85 FR 23075 (Apr. 24, 2020) (``Phased
Reporting Exemptive Relief Order'').
\111\ See, e.g., Q1 2024 Quarterly Progress Report (Apr. 30,
2024).
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(i) Phase 2a
The Quarterly Progress Reports state that ``Phase 2a was fully
implemented as of October 26, 2020.'' \112\ The Phase 2a Industry
Member Data is described in detail in the SEC's Phased Reporting
Exemptive Relief Order, and includes the following data related to
Eligible Securities that are equities:
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\112\ See, e.g., Q1 2024 Quarterly Progress Report (Apr. 30,
2024).
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All events and scenarios covered by OATS, which includes
information related to the receipt or origination of orders, order
transmittal, and order modifications, cancellations and executions;
Reportable Events for: (1) proprietary orders, including
market maker orders, for Eligible Securities that are equities; (2)
electronic quotes in listed equity Eligible Securities (i.e., NMS
stocks) sent to a national securities exchange or FINRA's Alternative
Display Facility (``ADF''); (3) electronic quotes in unlisted Eligible
Securities (i.e., OTC Equity Securities) received by an Industry Member
operating an interdealer quotation system (``IDQS''); and (4)
electronic quotes in unlisted Eligible Securities sent to an IDQS or
other quotation system not operated by a Participant or Industry
Member;
Firm Designated IDs (``FDIDs''), which Industry Members
must report to the CAT as required by Sections 6.3(d)(i)(A) and
6.4(d)(ii)(C) of the CAT NMS Plan;
Industry Members would be required to report all street
side representative orders, including both agency and proprietary
orders and mark such orders as representative orders, except in certain
limited exceptions as described in the Industry Member Technical
Specifications;
The link between the street side representative order and
the order being represented when: (1) the representative order was
originated specifically to represent a single order received either
from a customer or another broker-dealer; and (2) there is (a) an
existing direct electronic link in the Industry Member's system between
the order being represented and the representative order and (b) any
resulting executions are immediately and automatically applied to the
represented order in the Industry Member's system;
Manual and Electronic Capture Time for Manual Order
Events;
Special handling instructions for the original receipt or
origination of an order during Phase 2a; and
When routing an order, whether the order was routed as an
intermarket sweep order (``ISO'').
In Phase 2a, Industry Members were not required to report
modifications of a previously routed order in certain limited
instances, nor were they required to report a cancellation of an order
received from a Customer after the order has been executed.\113\
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\113\ Phased Reporting Exemptive Relief Order at 23076-78.
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(ii) Phase 2b
The Quarterly Progress Reports state that ``Phase 2b was fully
implemented as of January 4, 2021.'' \114\ The Phase 2b Industry Member
Data is described in detail in the SEC's Phased Reporting Exemptive
Relief Order, and includes the Industry Member Data related to Eligible
Securities that are options and related to simple electronic option
orders, excluding electronic paired option orders. A simple electronic
option order is an order to buy or sell a single option that is not
related to or dependent on any other transaction for pricing and timing
of execution that is either received or routed electronically by an
Industry Member. Electronic receipt of an order is defined as the
initial receipt of an order by an Industry Member in electronic form in
standard format directly into an order handling or execution system.
Electronic routing of an order is the routing of an order via
electronic medium in standard format from one Industry Member's order
handling or execution system to an exchange or another Industry Member.
An electronic paired option order is an electronic option order that
contains both the buy and sell side that is routed to another Industry
Member or exchange for crossing and/or price improvement as a single
transaction on an exchange. Responses to auctions of simple orders and
paired simple orders would be reportable in Phase 2b. Furthermore,
combined orders in options would be treated in Phase 2b in the same way
as equity representative orders are treated in Phase 2a. A combined
order would mean, as permitted by SRO rules, a single, simple order in
Listed Options created by combining individual, simple orders in Listed
Options from a customer with the same exchange origin code before
routing to an exchange. During Phase 2b, the single combined order sent
to an exchange must be reported and marked as a combined order, but the
linkage to the underlying orders is not required to be reported until
Phase 2d.\115\
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\114\ See, e.g., Q1 2024 Quarterly Progress Report (Apr. 30,
2024).
\115\ Phased Reporting Exemptive Relief Order at 23078.
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(iii) Phase 2c
The Quarterly Progress Reports state that ``Phase 2c was
implemented as of April 26, 2021.'' \116\ The Phase 2c Industry Member
Data is described in detail in the SEC's Phased Reporting Exemptive
Relief Order. That Order states that ``Phase 2c Industry Member Data''
is Industry Member Data related to Eligible Securities that are
equities other than Phase 2a Industry Member Data, Phase 2d Industry
Member Data, or Phase 2e Industry Member Data. Specifically, the Phase
2c Industry Member Data includes Industry Member Data that is related
to Eligible Securities that are equities and that is related to: (1)
Allocation Reports as required to be recorded and reported to the
Central Repository pursuant to Section 6.4(d)(ii)(A)(1) of the CAT NMS
Plan; (2) quotes in unlisted Eligible Securities sent to an IDQS
operated by a CAT Reporter (reportable by the Industry Member sending
the quotes) (except for quotes reportable in Phase 2d, as discussed
below); (3) electronic quotes in listed equity Eligible Securities
(i.e., NMS stocks) that are not sent to a national securities exchange
or FINRA's Alternative Display Facility; (4) reporting changes to
client instructions regarding modifications to algorithms; (5) marking
as a representative order any order originated to work a customer order
in price guarantee scenarios, such as a guaranteed VWAP; (6) flagging
rejected external routes to indicate a route was not accepted by the
receiving destination; (7) linkage of duplicate electronic messages
related to a Manual Order Event between the electronic
[[Page 72071]]
event and the original manual route; (8) special handling instructions
on order route reports (other than the ISO, which is required to be
reported in Phase 2a); (9) quote identifier on trade events; (10)
reporting of LTIDs (if applicable) for accounts with Reportable Events
that are reportable to CAT as of and including Phase 2c; (11) reporting
of date account opened or Account Effective Date (as applicable) for
accounts and reporting of a flag indicating the Firm Designated ID type
as account or relationship; (12) order effective time for orders that
are received by an Industry Member and do not become effective until a
later time; (13) the modification or cancellation of an internal route
of an order; and (14) linkages to the customer order(s) being
represented for representative order scenarios, including agency
average price trades, net trades, aggregated orders, and disconnected
Order Management System (``OMS'')--Execution Management System
(``EMS'') scenarios, as required in the Industry Member Technical
Specifications.\117\
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\116\ See, e.g., Q1 2024 Quarterly Progress Report (Apr. 30,
2024).
\117\ Phase Reporting Exemptive Relief Order at 23078-79.
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Phase 2c Industry Member Data also includes electronic quotes that
are provided by or received in a CAT Reporter's order/quote handling or
execution systems in Eligible Securities that are equities and are
provided by an Industry Member to other market participants off a
national securities exchange under the following conditions: (1) an
equity bid or offer is displayed publicly or has been communicated (a)
for listed securities to the ADF operated by FINRA; or (b) for unlisted
equity securities to an ``interdealer quotation system,'' as defined in
FINRA Rule 6420(c); or (2) an equity bid or offer which is accessible
electronically by customers or other market participants and is
immediately actionable for execution or routing; i.e., no further
manual or electronic action is required by the responder providing the
quote in order to execute or cause a trade to be executed). With
respect to OTC Equity Securities, OTC Equity Securities quotes sent by
an Industry Member to an IDQS operated by an Industry Member CAT
Reporter (other than such an IDQS that does not match and execute
orders) are reportable by the Industry Member sending them in Phase 2c.
Accordingly, any response to a request for quote or other form of
solicitation response provided in a standard electronic format (e.g.,
FIX) that meets this quote definition (i.e., an equity bid or offer
which is accessible electronically by customers or other market
participants and is immediately actionable for execution or routing)
would be reportable in Phase 2c.\118\
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\118\ Id. at 23079.
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(iv) Phase 2d
The Quarterly Progress Reports state that ``Phase 2d was fully
implemented as of December 13, 2021.'' \119\ The Phase 2d Industry
Member Data is described in detail in the SEC's Phased Reporting
Exemptive Relief Order. ``Phase 2d Industry Member Data'' is Industry
Member Data that is related to Eligible Securities that are options
other than Phase 2b Industry Member Data, Industry Member Data that is
related to Eligible Securities that are equities other than Phase 2a
Industry Member Data or Phase 2c Industry Member Data, and Industry
Member Data other than Phase 2e Industry Member Data. Phase 2d Industry
Member Data includes with respect to the Eligible Securities that are
options: (1) simple manual orders; (2) electronic and manual paired
orders; (3) all complex orders with linkages to all CAT-reportable
legs; (4) LTIDs (if applicable) for accounts with Reportable Events for
Phase 2d; (5) date account opened or Account Effective Date (as
applicable) for accounts with an LTID and flag indicating the Firm
Designated ID type as account or relationship for such accounts; (6)
Allocation Reports as required to be recorded and reported to the
Central Repository pursuant to Section 6.4(d)(ii)(A)(1) of the CAT NMS
Plan; (7) the modification or cancellation of an internal route of an
order; and (8) linkage between a combined order and the original
customer orders. Phase 2d Industry Member Data also would include
electronic quotes that are provided by or received in a CAT Reporter's
order/quote handling or execution systems in Eligible Securities that
are options and are provided by an Industry Member to other market
participants off a national securities exchange under the following
conditions: a listed option bid or offer which is accessible
electronically by customers or other market participants and is
immediately actionable (i.e., no further action is required by the
responder providing the quote in order to execute or cause a trade to
be executed). Accordingly, any response to a request for quote or other
form of solicitation response provided in standard electronic format
(e.g., FIX) that meets this definition is reportable in Phase 2d for
options.\120\
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\119\ See, e.g., Q1 2024 Quarterly Progress Report (Apr. 30,
2024).
\120\ Phase Reporting Exemptive Relief Order at 23079.
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Phase 2d Industry Member Data also includes with respect to
Eligible Securities that are options or equities (1) receipt time of
cancellation and modification instructions through Order Cancel Request
and Order Modification Request events; (2) modifications of previously
routed orders in certain instances; and (3) OTC Equity Securities
quotes sent by an Industry Member to an IDQS operated by an Industry
Member CAT Reporter that does not match and execute orders. In
addition, subject to any exemptive or other relief, Phase 2d Industry
Member Data includes verbal or manual quotes on an exchange floor or in
the over-the-counter market, where verbal quotes and manual quotes are
defined as bids or offers in Eligible Securities provided verbally or
that are provided or received other than via a CAT Reporter's order
handling and execution system (e.g., quotations provided via email or
instant messaging).\121\
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\121\ Id. at 23079-80.
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(v) Regulatory Access to Order and Transaction Data
The Financial Accountability Milestone related to Period 4 requires
that CAT provide functionality that permits the Participants and the
Commission to access Phase 2a, 2b, 2c and 2d data 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. As CAT LLC reported on its Quarterly Progress Reports, the
query tool functionality incorporating the data from Phases 2a, 2b, 2c
and 2d was available to the Participants and to the Commission as of
December 31, 2021.\122\
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\122\ See, e.g., Q1 2024 Quarterly Progress Report (Apr. 30,
2024).
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(B) CAIS Reporting and Regulatory Access
The CAT System functionality required by Rule 613 and the CAT NMS
Plan related to Customer information has been developed, successfully
tested, and fully implemented, including the requirements related to
regulatory access. The implementation of CAT requirements related to
Customer information occurred during Phase 2e. As described in the
Quarterly Progress Reports and summarized below, Phase 2e has been
fully implemented as of May 31, 2024.\123\ Furthermore, because a month
of customer and account information data is necessary to create
[[Page 72072]]
report cards with regard to such data, the publication of monthly
report cards with respect to customer and account information commenced
on July 15, 2024.\124\ Accordingly, the Financial Accountability
Milestone related to Period 4 was completed on July 15, 2024.
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\123\ Id.
\124\ Q2 & Q3 2024 Quarterly Progress Report (July 29, 2024).
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(i) Phase 2e
The Q2 & Q3 2024 Quarterly Progress Report indicates that Phase 2e
was fully implemented as of May 31, 2024.\125\ Phase 2e Industry Member
Data is described in detail in the SEC's Phased Reporting Exemptive
Relief Order. ``Phase 2e Industry Member Data'' includes ``Customer
Account Information and Customer Identifying Information, other than
LTIDs, date account opened/Account Effective Date and Firm Designated
ID type flag previously reported to the CAT.'' \126\ LTIDs and Account
Effective Date are both provided in Phases 2c and 2d in certain
circumstances, as discussed above. Section 1.1 of the CAT NMS Plan
defines the term ``Customer Account Information'' to
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\125\ Id.
\126\ Phase Reporting Exemptive Relief Order at 23080.
include, but not be limited to, account number, account type,
customer type, date account opened, and large trader identifier (if
applicable); except, however, that (a) in those circumstances in
which an Industry Member has established a trading relationship with
an institution but has not established an account with that
institution, the Industry Member will (i) provide the Account
Effective Date in lieu of the ``date account opened''; (ii) provide
the relationship identifier in lieu of the ``account number''; and
(iii) identify the ``account type'' as a ``relationship''; (b) in
those circumstances in which the relevant account was established
prior to the implementation date of the CAT NMS Plan applicable to
the relevant CAT Reporter (as set forth in Rule 613(a)(3)(v) and
(vi)), and no ``date account opened'' is available for the account,
the Industry Member will provide the Account Effective Date in the
following circumstances: (i) where an Industry Member changes back
office providers or clearing firms and the date account opened is
changed to the date the account was opened on the new back office/
clearing firm system; (ii) where an Industry Member acquires another
Industry Member and the date account opened is changed to the date
the account was opened on the post-merger back office/clearing firm
system; (iii) where there are multiple dates associated with an
account in an Industry Member's system, and the parameters of each
date are determined by the individual Industry Member; and (iv)
where the relevant account is an Industry Member proprietary
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account.
The term ``Customer Identifying Information'' is defined in Section
1.1 of the CAT NMS Plan to mean
information of sufficient detail to identify a Customer, including,
but not limited to, (a) with respect to individuals: name, address,
date of birth, individual tax payer identification number
(``ITIN'')/social security number (``SSN''), individual's role in
the account (e.g., primary holder, joint holder, guardian, trustee,
person with the power of attorney); and (b) with respect to legal
entities: name, address, Employer Identification Number (``EIN'')/
Legal Entity Identifier (``LEI'') or other comparable common entity
identifier, if applicable; provided, however, that an Industry
Member that has an LEI for a Customer must submit the Customer's LEI
in addition to other information of sufficient detail to identify a
Customer.
(ii) Regulatory Access to Customer Information
The Financial Accountability Milestone related to Period 4 requires
that CAT provide functionality that permits the Participants and the
Commission to access Phase 2e Industry Member Data (in addition to the
Phase 2a, 2b, 2c and 2d Industry Member Data, as discussed above). As
CAT LLC reported on its Q2 & Q3 Quarterly Progress Report, regulators
had efficient access to Phase 2e Industry Member Data via the query
tool functionality required under the CAT NMS Plan by July 15,
2024.\127\
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\127\ Q2 & Q3 2024 Quarterly Progress Report (July 29, 2024).
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(C) Error Rate
The Financial Accountability Milestones related to Period 4 require
the implementation of the CAT System ``at the initial Error Rates
specified by Section 6.5(d)(i) or less.'' The average overall error
rate as of July 15, 2024, was less than 5%, which is the initial Error
Rate specified by Section 6.5(d)(i) of the CAT NMS Plan. The average
overall error rate was calculated by dividing the compliance errors by
processed records.
(7) Participant Invoices
While CAT Fees charged to Industry Members become effective in
accordance with the requirements of Section 19(b) of the Exchange
Act,\128\ CAT fees charged to Participants are implemented via an
approval of the CAT fees by the Operating Committee in accordance with
the requirements of the CAT NMS Plan.\129\ On July 31, 2024, the
Operating Committee approved the Participant fee related to CAT Fee
2024-1. Specifically, pursuant to the requirements of CAT NMS
Plan,\130\ each Participant would be required to pay a CAT fee
calculated using the fee rate of $0.000035, which is the same fee rate
that applies to CEBBs and CEBSs. Like CEBBs and CEBSs, each Participant
would be required to pay such CAT fees on a monthly basis for four
months, from November 2024 until February 2025, and each Participant's
fee for each month would be calculated based on the transactions in
Eligible Securities executed on the applicable exchange (for the
Participant exchanges) or otherwise than on the exchange (for FINRA) in
the prior month. Accordingly, each Participant will receive its first
invoice in October 2024, and would receive an invoice each month
thereafter until January 2025. Like with the CAT Fee 2024-1 applicable
to CEBBs and CEBSs as described in proposed paragraph (a)(3)(C) to the
Consolidated Audit Trail Funding Fees section of the Equities Price
List and the Options Fee Schedule, notwithstanding the last invoice
date of January 2025, Participants will continue to receive invoices
for this fee each month until a new subsequent CAT Fee is in effect
with regard to Industry Members. Furthermore, Section 11.4 of the CAT
NMS Plan states that each Participant is required to pay such invoices
as required by Section 3.7(b) of the CAT NMS Plan. Section 3.7(b)
states, in part, that
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\128\ Section 11.3(a)(i)(A)(I) of the CAT NMS Plan.
\129\ CAT Funding Model Approval Order at 62659.
\130\ See Section 11.3(a)(ii) and Appendix B of the CAT NMS
Plan.
[e]ach Participant shall pay all fees or other amounts required to
be paid under this Agreement within thirty (30) days after receipt
of an invoice or other notice indicating payment is due (unless a
longer payment period is otherwise indicated) (the ``Payment
Date''). The Participant shall pay interest on the outstanding
balance from the Payment Date until such fee or amount is paid at a
per annum rate equal to the lesser of: (i) Prime Rate plus 300 basis
points; or (ii) the maximum rate permitted by applicable law.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the requirements of the Exchange Act. The Exchange believes that the
proposed rule change is consistent with Section 6(b)(5) of the
Act,\131\ which requires, among other things, that the Exchange's rules
must be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and, in
general, to protect investors and the public interest, and not designed
to permit unfair
[[Page 72073]]
discrimination between customers, issuers, brokers and dealers. The
Exchange also believes that the proposed rule change is consistent with
the provisions of Section 6(b)(4) of the Act,\132\ because it provides
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using its facilities and
does not unfairly discriminate between customers, issuers, brokers or
dealers. The Exchange further believes that the proposed rule change is
consistent with Section 6(b)(8) of the Act,\133\ which requires that
the Exchange's rules not impose any burden on competition that is not
necessary or appropriate in furtherance of the purpose of the Exchange
Act. These provisions also require that the Exchange be ``so organized
and [have] the capacity to be able to carry out the purposes'' of the
Act and ``to comply, and . . . to enforce compliance by its members and
persons associated with its members,'' with the provisions of the
Exchange Act.\134\ Accordingly, a reasonable reading of the Act
indicates that it intended that regulatory funding be sufficient to
permit an exchange to fulfill its statutory responsibility under the
Act, and contemplated that such funding would be achieved through
equitable assessments on the members, issuers, and other users of an
exchange's facilities.
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\131\ 15 U.S.C. 78f(b)(6).
\132\ 15 U.S.C. 78f(b)(4).
\133\ 15 U.S.C. 78f(b)(8).
\134\ See Section 6(b)(1) of the Exchange Act.
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The Exchange believes that this proposal is consistent with the Act
because it implements provisions of the Plan and is designed to assist
the Exchange in meeting regulatory obligations pursuant to the Plan. In
approving the Plan, the SEC noted that the Plan ``is necessary and
appropriate in the public interest, for the protection of investors and
the maintenance of fair and orderly markets, to remove impediments to,
and perfect the mechanism of a national market system, or is otherwise
in furtherance of the purposes of the Act.'' \135\ To the extent that
this proposal implements the Plan and applies specific requirements to
Industry Members, the Exchange believes that this proposal furthers the
objectives of the Plan, as identified by the SEC, and is therefore
consistent with the Act.
---------------------------------------------------------------------------
\135\ CAT NMS Plan Approval Order at 84697.
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The Exchange believes that the proposed fees to be paid by the
CEBBs and CEBSs are reasonable, equitably allocated and not unfairly
discriminatory. First, the CAT Fee 2024-1 fees to be collected are
directly associated with the budgeted costs of establishing and
maintaining the CAT, where such costs include Plan Processor costs and
costs related to technology, legal, consulting, insurance, professional
and administration, and public relations costs.
The proposed CAT Fee 2024-1 fees would be charged to Industry
Members in support of the maintenance of a consolidated audit trail for
regulatory purposes. The proposed fees, therefore, are consistent with
the Commission's view that regulatory fees be used for regulatory
purposes and not to support the Exchange's business operations. The
proposed fees would not cover Exchange services unrelated to the CAT.
In addition, any surplus would be used as a reserve to offset future
fees. Given the direct relationship between CAT fees and CAT costs, the
Exchange believes that the proposed fees are reasonable, equitable and
not unfairly discriminatory.
As further discussed below, the SEC approved the CAT Funding Model,
finding it was reasonable and that it equitably allocates fees among
Participants and Industry Members. The Exchange believes that the
proposed fees adopted pursuant to the CAT Funding Model approved by the
SEC are reasonable, equitably allocated and not unfairly
discriminatory.
(1) Implementation of CAT Funding Model in CAT NMS Plan
Section 11.1(b) of the CAT NMS Plan states that ``[t]he
Participants shall file with the SEC under Section 19(b) of the
Exchange Act any such fees on Industry Members that the Operating
Committee approves.'' Per Section 11.1(b) of the CAT NMS Plan, the
Exchange has filed this fee filing to implement the Industry Member CAT
fees included in the CAT Funding Model. The Exchange believes that this
proposal is consistent with the Exchange Act because it is consistent
with, and implements, the CAT Funding Model in the CAT NMS Plan, and is
designed to assist the Exchange and its Industry Members in meeting
regulatory obligations pursuant to the CAT NMS Plan. In approving the
CAT NMS Plan, the SEC noted that the Plan ``is necessary and
appropriate in the public interest, for the protection of investors and
the maintenance of fair and orderly markets, to remove impediments to,
and perfect the mechanism of a national market system, or is otherwise
in furtherance of the purposes of the Act.'' \136\ Similarly, in
approving the CAT Funding Model, the SEC concluded that the CAT Funding
Model met this standard.\137\ As this proposal implements the Plan and
the CAT Funding Model described therein, and applies specific
requirements to Industry Members in compliance with the Plan, the
Exchange believes that this proposal furthers the objectives of the
Plan, as identified by the SEC, and is therefore consistent with the
Exchange Act.
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\136\ Id. at 84696.
\137\ CAT Funding Model Approval Order at 62686.
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(2) Calculation of Fee Rate for CAT Fee 2024-1 Is Reasonable
The SEC has determined that the CAT Funding Model is reasonable and
satisfies the requirements of the Exchange Act. Specifically, the SEC
has concluded that the method for determining CAT Fees as set forth in
Section 11.3 of the CAT NMS Plan, including the formula for calculating
the Fee Rate, the identification of the parties responsible for payment
and the transactions subject to the fee rate for CAT Fees, is
reasonable and satisfies the Exchange Act.\138\ In each respect, as
discussed above, CAT Fee 2024-1 is calculated, and would be applied, in
accordance with the requirements applicable to CAT Fees as set forth in
the CAT NMS Plan. Furthermore, as discussed below, the Exchange
believes that each of the figures for the variables in the SEC-approved
formula for calculating the fee rate for CAT Fee 2024-1 is reasonable
and consistent with the Exchange Act. Calculation of Fee Rate 2024-1
for CAT Fee 2024-1 requires the figures for Budgeted CAT Costs 2024-1,
the executed equivalent share volume for the prior twelve months, the
determination of CAT Fee 2024-1 Period, and the projection of the
executed equivalent share volume for CAT Fee 2024-1 Period. Each of
these variables is reasonable and satisfies the Exchange Act, as
discussed throughout this filing.
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\138\ Id. at 62662-63.
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(A) Budgeted CAT Costs 2024-1
The formula for calculating a Fee Rate requires the amount of
Budgeted CAT Costs to be recovered. Specifically, Section
11.3(a)(iii)(B) of the CAT NMS Plan requires a fee filing to provide:
The budget for the upcoming year (or remainder of the year, as
applicable), including a brief description of each line item in the
budget, including (1) the technology line items of cloud hosting
services, operating fees, CAIS operating fees, change request fees,
and capitalized developed technology costs, (2) legal, (3)
consulting, (4) insurance, (5) professional and administration and
(6) public relations costs, a reserve and/or such other categories
[[Page 72074]]
as reasonably determined by the Operating Committee to be included
in the budget, and the reason for changes in each such line item
from the prior CAT fee filing.
In accordance with this requirement, the Exchange has set forth the
amount and type of Budgeted CAT Costs 2024-1 for each of these
categories above.
Section 11.3(a)(iii)(B) of the CAT NMS Plan also requires that the
fee filing provide ``sufficient detail to demonstrate that the budget
for the upcoming year, or part of year, as applicable, is reasonable
and appropriate.'' As discussed below, the Exchange believes that the
budget for the CAT Fee 2024-1 Period is ``reasonable and appropriate.''
Each of the costs included in CAT Fee 2024-1 are reasonable and
appropriate because the costs are consistent with standard industry
practice, based on the need to comply with the requirements of the CAT
NMS Plan, incurred subject to negotiations performed on an arm's length
basis, and/or are consistent with the needs of any legal entity,
particularly one with no employees.
(i) Technology: Cloud Hosting Services
In approving the CAT Funding Model, the Commission recognized that
it is appropriate to recover budgeted costs related to cloud hosting
services as a part of CAT Fees.\139\ CAT LLC determined that the
budgeted costs related to cloud hosting services described in this
filing are reasonable and should be included as a part of Budgeted CAT
Costs 2024-1. As described above, the cloud hosting services costs
reflect, among other things, the breadth of the CAT cloud activities,
data volumes far in excess of the original volume estimates, the need
for specialized cloud services given the volume and unique nature of
the CAT, the processing time requirements of the Plan, and regular
efforts to seek to minimize costs where permissible under the Plan. CAT
LLC determined that use of cloud hosting services is necessary for
implementation of the CAT, particularly given the substantial data
volumes associated with the CAT, and that the fees for cloud hosting
services negotiated by FCAT were reasonable, taking into consideration
a variety of factors, including the expected volume of data and the
breadth of services provided and market rates for similar
services.\140\ Indeed, the actual costs of the CAT are far in excess of
the original estimated costs of the CAT due to various factors,
including the higher volumes and greater complexity of the CAT than
anticipated when Rule 613 was originally adopted.
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\139\ Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan.
\140\ For a discussion of the amount and type of cloud hosting
services fees, see Section 3(a)(2)(C)(i) above.
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To comply with the requirements of the Plan, the breadth of the
cloud activities related to the CAT is substantial. The cloud services
not only include the production environment for the CAT, but they also
include two industry testing environments, support environments for
quality assurance and stress testing and disaster recovery
capabilities. Moreover, the cloud storage costs are driven by the
requirements of the Plan, which requires the storage of multiple
versions of the data, from the original submitted version of the data
through various processing steps, to the final version of the data.
Data volume is a significant driver of costs for cloud hosting
services. When the Commission adopted the CAT NMS Plan in 2016, it
estimated that the CAT would need to receive 58 billion records per day
\141\ and that annual operating costs for the CAT would range from
$36.5 million to $55 million.\142\ Through 2023, the actual data
volumes have been five times that original estimate. The data volumes
to date for 2024 have continued this trend.
---------------------------------------------------------------------------
\141\ Appendix D-4 of the CAT NMS Plan at n.262.
\142\ CAT NMS Plan Approval Order at 84801.
---------------------------------------------------------------------------
In addition to the effect of the data volume on the cloud hosting
costs, the processing timelines set forth in the Plan contribute to the
cloud hosting costs. Although CAT LLC has proactively sought to manage
cloud hosting costs while complying with the Plan, including through
requests to the Commission for exemptive relief and amendments to the
CAT NMS Plan, stringent CAT NMS Plan requirements do not allow for any
material flexibility in cloud architecture design choices, processing
timelines (e.g., the use of non-peak processing windows), or lower-cost
storage tiers. As a result, the required CAT processing timelines
contribute to the cloud hosting costs of the CAT.
The costs for cloud hosting services also reflect the need for
specialized cloud hosting services given the data volume and unique
processing needs of the CAT. The data volume as well as the data
processing needs of the CAT necessitate the use of cloud hosting
services. The equipment, power and services required for an on-premises
data model, the alternative to cloud hosting services, would be cost
prohibitive. Moreover, as CAT was being developed, there were limited
cloud hosting providers that could satisfy all the necessary CAT
requirements, including the operational and security criteria. Over
time, more providers offering cloud hosting services that would satisfy
these criteria have entered the market. CAT LLC will continue to
evaluate alternative cloud hosting services, recognizing that the time
and cost to move to an alternative cloud provider would be substantial.
The reasonableness of the cloud hosting services costs is further
supported by key cost discipline mechanisms for the CAT--a cost-based
funding structure, cost transparency, cost management efforts
(including regular efforts to lower compute and storage costs where
permitted by the Plan) and oversight. Together, these mechanisms help
ensure the ongoing reasonableness of the CAT's costs and the level of
fees assessed to support those costs.\143\
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\143\ See Securities Exchange Act Rel. No. 97151 (Mar. 15,
2023), 88 FR 17086, 17117 (Mar. 21, 2023) (describing key cost
discipline mechanisms for the CAT).
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(ii) Technology: Operating Fees
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted costs related to operating fees as a
part of CAT Fees.\144\ CAT LLC determined that the budgeted costs
related to operating fees described in this filing are reasonable and
should be included as a part of Budgeted CAT Costs 2024-1.
---------------------------------------------------------------------------
\144\ Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan.
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The operating fees would include the negotiated fees paid by CAT
LLC to the Plan Processor to operate and maintain the system for order-
related information and to perform business operations related to the
system, including compliance, security, testing, training,
communications with the industry (e.g., management of the FINRA CAT
Helpdesk, FAQs, website and webinars) and program management. CAT LLC
determined that the selection of FCAT as the Plan Processor was
reasonable and appropriate given its expertise with securities
regulatory reporting, after a process of considering other potential
candidates.\145\ CAT LLC also determined that the fixed price contract,
negotiated on an arm's length basis with the goals of managing costs
and receiving services required to comply with the CAT NMS Plan and
Rule 613, was reasonable and appropriate, taking into consideration a
variety of factors, including the breadth of services provided and
market rates for similar types of activity.\146\ The services to be
performed by FCAT for CAT Fee 2024-
[[Page 72075]]
1 Period and the budgeted costs related to such services are described
above.\147\
---------------------------------------------------------------------------
\145\ See Section 3(a)(2)(C)(ii) above.
\146\ Id.
\147\ Id.
---------------------------------------------------------------------------
The operating costs also include costs related to the receipt of
market data. CAT LLC anticipates continuing to receive certain market
data from Exegy during the CAT Fee 2024-1 Period. CAT LLC anticipates
that Exegy will continue to provide data that meets the SIP Data
requirements of the CAT NMS Plan and that the fees are reasonable and
in line with market rates for market data received.\148\
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\148\ Id.
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(iii) Technology: CAIS Operating Fees
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted costs related to CAIS operating fees as
a part of CAT Fees.\149\ CAT LLC determined that the budgeted costs
related to CAIS operating fees described in this filing are reasonable
and should be included as a part of Budgeted CAT Costs 2024-1. The CAIS
operating fees would include the fees paid to the Plan Processor to
operate and maintain CAIS and to perform the business operations
related to the system, including compliance, security, testing,
training, communications with the industry (e.g., management of the
FINRA CAT Helpdesk, FAQs, website and webinars) and program management.
CAT LLC determined that the fees for FCAT's CAIS-related services,
negotiated on an arm's length basis with the goals of managing costs
and receiving services required to comply with the CAT NMS Plan, taking
into consideration a variety of factors, including the services to be
provided and market rates for similar types of activity, are reasonable
and appropriate.\150\ The services to be performed by FCAT for the CAT
Fee 2024-1 Period and the budgeted costs for such services are
described above.\151\
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\149\ Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan.
\150\ See Section 3(a)(2)(C)(iii) above.
\151\ Id.
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(iv) Technology: Change Request Fees
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted costs related to change request fees as
a part of CAT Fees.\152\ CAT LLC determined that the budgeted costs
related to change request fees described in this filing are reasonable
and should be included as a part of Budgeted CAT Costs 2024-1. It is
common practice to utilize a change request process to address evolving
needs in technology projects. This is particularly true for a project
like CAT that is the first of its kind, both in substance and in scale.
The substance and costs of each of the change requests are evaluated by
the Operating Committee and approved in accordance with the
requirements for Operating Committee meetings. In each case, CAT LLC
forecasts that the change requests will be necessary to implement the
CAT. As described above,\153\ CAT LLC has included a reasonable
placeholder budget amount for potential change requests that may arise
during the CAT Fee 2024-1 Period. As noted above, the total budgeted
costs for change requests during the CAT Fee 2024-1 Period represent a
small percentage of Budgeted CAT Costs 2024-1--that is, approximately
0.12% of Budgeted CAT Costs 2024-1.
---------------------------------------------------------------------------
\152\ Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan.
\153\ See Section 3(a)(2)(C)(iv) above.
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(v) Capitalized Developed Technology Costs
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted costs related to capitalized developed
technology costs as a part of CAT Fees.\154\ In general, capitalized
developed technology costs would include costs related to, for example,
certain development costs, costs related to certain modifications,
upgrades and other changes to the CAT, CAIS implementation fees and
license fees. The amount and type of budgeted capitalized developed
technology costs for the CAT Fee 2024-1 Period, which relate to the
CAIS software license fee and technology changes to be implemented by
FCAT, are described in more detail above.\155\ CAT LLC determined that
these budgeted costs are reasonable and should be included as a part of
Budgeted CAT Costs 2024-1.
---------------------------------------------------------------------------
\154\ Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan.
\155\ See Section 3(a)(2)(C)(v) above.
---------------------------------------------------------------------------
(vi) Legal
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted costs related to legal fees as a part
of CAT Fees.\156\ CAT LLC determined that the budgeted legal costs
described in this filing are reasonable and should be included as a
part of Budgeted CAT Costs 2024-1. Given the unique nature of the CAT,
the number of parties involved with the CAT (including, for example,
the SEC, Participants, Industry Members, and vendors) and the many
regulatory, contractual and other issues associated with the CAT, the
scope of the necessary legal services is substantial. CAT LLC
determined that the scope of the proposed legal services is necessary
to implement and maintain the CAT and that the legal rates reflect the
specialized services necessary for such a project. CAT LLC determined
to hire and continue to use each law firm based on a variety of
factors, including their relevant expertise and fees. In each case, CAT
LLC determined that the fee rates were in line with market rates for
specialized legal expertise. In addition, CAT LLC determined that the
budgeted costs for the legal projects were appropriate given the
breadth of the services provided. The services to be performed by each
law firm for the CAT Fee 2024-1 Period and the budgeted costs related
to such services are described above.\157\
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\156\ Section 11.3(a)(iii)(B)(B)(2) of the CAT NMS Plan.
\157\ See Section 3(a)(2)(B)(vi) above.
---------------------------------------------------------------------------
(vii) Consulting
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted consulting costs as a part of CAT
Fees.\158\ CAT LLC determined that the budgeted consulting costs
described in this filing are reasonable and should be included as a
part of Budgeted CAT Costs 2024-1. Because there are no CAT employees
\159\ and because of the significant number of issues associated with
the CAT, the consultants are budgeted to provide assistance in the
management of various CAT matters and the processes related to such
matters.\160\ CAT LLC determined the budgeted consulting costs were
appropriate, as the consulting services were to be provided at
reasonable market rates that were comparable to the rates charged by
other consulting firms for similar work. Moreover, the total budgeted
costs for such consulting services were appropriate in light of the
breadth of services provided by Deloitte. The services budgeted to be
performed by Deloitte and the budgeted costs related to such services
are described above.\161\
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\158\ Section 11.3(b)(iii)(B)(B)(3) of the CAT NMS Plan.
\159\ As stated in the filing of the proposed CAT NMS Plan,
``[i]t is the intent of the Participants that the Company have no
employees.'' Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016),
81 FR 30614, 30621 (May 17, 2016).
\160\ CAT LLC uses certain third parties to perform tasks that
may be performed by administrators for other NMS Plans. See, e.g.,
CTA Plan and CQ Plan.
\161\ Section 3(a)(2)(C)(vii) of the CAT NMS Plan.
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(viii) Insurance
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted insurance costs as
[[Page 72076]]
a part of CAT Fees.\162\ CAT LLC determined that the budgeted insurance
costs described in this filing are reasonable and should be included as
a part of Budgeted CAT Costs 2024-1. CAT LLC determined that it is
common practice to have directors' and officers' liability insurance,
and errors and omissions liability insurance. CAT LLC further
determined that it was important to have cyber security insurance given
the nature of the CAT, and such a decision is consistent with the CAT
NMS Plan, which states that the cyber incident response plan may
include ``[i]nsurance against security breaches.'' \163\ As discussed
above,\164\ CAT LLC determined that the budgeted insurance costs were
appropriate given its prior experience with this market and an analysis
of the alternative insurance offerings. Based on this analysis, CAT LLC
determined that the selected insurance policies provided appropriate
coverage at reasonable market rates.\165\
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\162\ Section 11.3(b)(iii)(B)(B)(4) of the CAT NMS Plan.
\163\ Section 4.1.5 of Appendix D of the CAT NMS Plan.
\164\ See Section 3(a)(2)(C)(viii) above.
\165\ Id.
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(ix) Professional and Administration
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted professional and administration costs
as a part of CAT Fees.\166\ CAT LLC determined that the budgeted
professional and administration costs described in this filing are
reasonable and should be included as a part of Budgeted CAT Costs 2024-
1. Because there are no CAT employees, all required accounting,
financial, tax, cash management and treasury functions for CAT LLC have
been outsourced at market rates. In addition, the required annual
financial statement audit of CAT LLC is included in professional and
administration costs, which costs are also at market rates. The
services performed by Anchin and Grant Thornton and the costs related
to such services are described above.\167\
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\166\ Section 11.3(a)(iii)(B)(B)(5) of the CAT NMS Plan.
\167\ See Section 3(a)(2)(C)(ix) above.
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CAT LLC anticipates continuing to make use of Anchin, a financial
advisory firm, to assist with financial matters for the CAT. CAT LLC
determined that the budgeted costs for Anchin were appropriate, as the
financial advisory services were to be provided at reasonable market
rates that were comparable to the rates charged by other such firms for
similar work. Moreover, the total budgeted costs for such financial
advisory services were appropriate in light of the breadth of services
provided by Anchin. The services budgeted to be performed by Anchin and
the budgeted costs related to such services are described above.\168\
---------------------------------------------------------------------------
\168\ Id.
---------------------------------------------------------------------------
CAT LLC anticipates continuing to make use of Grant Thornton, an
independent accounting firm, to complete the audit of CAT LLC's
financial statements, in accordance with the requirements of the CAT
NMS Plan. CAT LLC determined that the budgeted costs for Grant Thornton
were appropriate, as the accounting services were to be provided at
reasonable market rates that were comparable to the rates charged by
other such firms for similar work. Moreover, the total budgeted costs
for such accounting services were appropriate in light of the breadth
of services provided by Grant Thornton. The services budgeted to be
performed by Grant Thornton and the budgeted costs related to such
services are described above.\169\
---------------------------------------------------------------------------
\169\ Id.
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(x) Public Relations Costs
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted public relations costs as a part of CAT
Fees.\170\ CAT LLC determined that the budgeted public relations costs
described in this filing are reasonable and should be included as a
part of Budgeted CAT Costs 2024-1. CAT LLC determined that the types of
public relations services to be utilized were beneficial to the CAT and
market participants more generally. Public relations services are
important for various reasons, including monitoring comments made by
market participants about CAT and understanding issues related to the
CAT discussed on the public record.\171\ By continuing to engage a
public relations firm, CAT LLC will be better positioned to understand
and address CAT issues to the benefit of all market participants.\172\
Moreover, CAT LLC determined that the budgeted rates charged for such
services were in line with market rates.\173\ As noted above, the total
budgeted public relations costs for the CAT Fee 2024-1 Period represent
a small percentage of Budgeted CAT Costs 2024-1--that is, approximately
0.03% of Budgeted CAT Costs 2024-1.
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\170\ Section 11.3(a)(iii)(B)(B)(6) of the CAT NMS Plan.
\171\ See Section 3(a)(2)(C)(x) above.
\172\ Id.
\173\ Id.
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(xi) Reserve
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted reserve costs as a part of CAT
Fees.\174\ CAT LLC determined that the inclusion of a reserve in the
amount of 25% of Budgeted CAT Costs 2024-1 complies with the
requirements of the CAT NMS Plan related to a reserve, is a reasonable
amount and should be included as a part of Budgeted CAT Costs 2024-1.
---------------------------------------------------------------------------
\174\ Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan.
---------------------------------------------------------------------------
In its approval order for the CAT Funding Model, the Commission
stated that it would be reasonable for the annual operating budget for
the CAT to ``include a reserve of not more than 25% of the annual
budget.'' \175\ In making this statement, the Commission noted the
following:
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\175\ CAT Funding Model Approval Order at 62657.
Because the CAT is a critical regulatory tool/system, the CAT
needs to have a stable funding source to build financial stability
to support the Company as a going concern. Funding for the CAT, as
noted in Section 11.1(b), is the responsibility of the Participants
and the industry. Because CAT fees are charged based on the budget,
which is based on anticipated volume, it is reasonable to have a
reserve on hand to prevent a shortfall in the event there is an
unexpectedly high volume in a given year. A reserve would help to
assure that the CAT has sufficient resources to cover costs should
there be unanticipated costs or costs that are higher than
expected.\176\
---------------------------------------------------------------------------
\176\ Id.
The SEC also recognized that that a reserve would help address the
difficulty in predicting certain variable CAT costs, like trading
volume.\177\ The SEC also recognized that CAT fees will be collected
approximately three months after trading activity on which a CAT fee is
based, or 25% of the year, and that the reserve would be available to
address funding needs related to this three-month delay.\178\ The
inclusion of the proposed reserve in Budgeted CAT Costs 2024-1 would
provide each of these benefits to the CAT. The reserve is discussed
further above.\179\
---------------------------------------------------------------------------
\177\ Id.
\178\ Id.
\179\ See Section 3(a)(2)(C)(xi) above.
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(B) Reconciliation of Budget to the Collected Fees
The CAT NMS Plan also requires fee filings for Prospective CAT Fees
to include ``a discussion of how the budget is reconciled to the
collected fees.'' \180\ To date, CAT LLC has not collected any CAT
fees. Accordingly, there are no
[[Page 72077]]
collected fees to be reconciled with the budget.
---------------------------------------------------------------------------
\180\ Section 11.3(a)(iii)(B)(C) of the CAT NMS Plan.
---------------------------------------------------------------------------
(C) Total Executed Equivalent Share Volume for the Prior 12 Months
The total executed equivalent share volume of transactions in
Eligible Securities for the period from June 2023 through May 2024 was
3,980,753,840,905.21 executed equivalent shares. CAT LLC determined the
total executed equivalent share volume for the prior twelve months by
counting executed equivalent shares in the same manner as it counts
executed equivalent shares for CAT billing purposes.\181\
---------------------------------------------------------------------------
\181\ See Section 3(a)(2)(D) above.
---------------------------------------------------------------------------
(D) Projected Executed Equivalent Share Volume for the CAT Fee 2024-1
Period
CAT LLC has determined to calculate the projected total executed
equivalent share volume for the four months in which CAT Fee 2024-1
Period would be payable by multiplying by \4/12\ths (i.e., one-third)
the executed equivalent share volume for the prior 12 months.\182\ CAT
LLC determined that such an approach was reasonable as the CAT's annual
executed equivalent share volume has remained relatively constant in
recent years. For example, the executed equivalent share volume for
2021 was 3,963,697,612,395 executed equivalent shares, the executed
equivalent share volume for 2022 was 4,039,821,841,560.31 executed
equivalent shares, and the executed equivalent share volume for 2023
was 3,868,940,345,680.6. Accordingly, the projected total executed
equivalent share volume for the four-month period for CAT Fee 2024-1 is
1,326,917,946,968.403 executed equivalent shares.\183\
---------------------------------------------------------------------------
\182\ Id.
\183\ This projection was calculated by multiplying
3,980,753,840,905.21 executed equivalent shares by \4/12\ths.
---------------------------------------------------------------------------
(E) Actual Fee Rate for CAT Fee 2 024-1
(i) Decimal Places
As noted in the approval order for the CAT Funding Model, as a
practical matter, the fee filing for a CAT Fee would provide the exact
fee per executed equivalent share to be paid for each CAT Fee, by
multiplying the Fee Rate by one-third and describing the relevant
number of decimal places for the fee rate.\184\ Accordingly, proposed
paragraph (a)(3)(B) to the Consolidated Audit Trail Funding Fees
section of the Equities Price List and the Options Fee Schedule would
set forth a fee rate of $0.000035 per executed equivalent share. This
fee rate is calculated by multiplying Fee Rate 2024-1 by one-third and
rounding the result to six decimal places. CAT LLC determined that the
use of six decimal places is reasonable as it balances the accuracy of
the calculation with the potential systems and other impracticalities
of using additional decimal places in the calculation.\185\
---------------------------------------------------------------------------
\184\ CAT Funding Model Approval Order at 62658, n.658.
\185\ See Section 3(a)(4)(A) above.
---------------------------------------------------------------------------
(ii) Reasonable Fee Level
The Exchange believes that imposing CAT Fee 2024-1 with a fee rate
of $0.000035 per executed equivalent share is reasonable because it
provides for a revenue stream for the Company that is aligned with
Budgeted CAT Costs 2024-1 and such budgeted costs would be spread out
over a four-month period. Moreover, the Exchange believes that the
level of the fee rate is reasonable, as it is comparable to other
transaction-based fees. Indeed, CAT Fee 2024-1 is significantly lower
than fees assessed pursuant to Section 31 (e.g., $0.0009 per share to
0.0004 per share),\186\ and, as a result, the magnitude of CAT Fee
2024-1 is small, and therefore will mitigate any potential adverse
economic effects or inefficiencies.\187\
---------------------------------------------------------------------------
\186\ CAT Funding Model Approval Order at 62663, 62682. In
explaining the comparison of Section 31 fees to CAT fees in the CAT
Funding Model Approval Order, the SEC noted that ``Section 31 fees
are expressed per dollar volume traded. Translating this to a per
share range involves identifying reasonable high and low trade
sizes. The lower end of this range comes from the 25th percentile in
$ trade size of 1,200 and share trade size of 71 from the first
quarter of 2021. The higher end of this range comes from the 75th
percentile in $ trade size of 5,200 and share trade size of 300 from
the first quarter of 2021. Section 31 fees have ranged from $5.10
per $Million to $23.10 per $Million from Oct. 1, 2016 to Mar. 1,
2023.'' Id. at 62682., n.1100. In 2024, Section 31 fees were raised
further to $27.80 per million dollars.
\187\ Id.
---------------------------------------------------------------------------
(3) CAT Fee 2024-1 Provides for an Equitable Allocation of Fees
CAT Fee 2024-1 provides for an equitable allocation of fees, as it
equitably allocates CAT costs between and among the Participants and
Industry Members. The SEC approved the CAT Funding Model, finding that
each aspect of the CAT Funding Model satisfied the requirements of the
Exchange Act, including the formula for calculating CAT Fees as well as
the Industry Members to be charged the CAT Fees.\188\ In approving the
CAT Funding Model, the SEC stated that ``[t]he Participants have
sufficiently demonstrated that the proposed allocation of fees is
reasonable.'' \189\ Accordingly, the CAT Funding Model sets forth the
requirements for allocating fees related to Budgeted CAT Costs among
Participants and Industry Members, and the fee filings for CAT Fees
must comply with those requirements.
---------------------------------------------------------------------------
\188\ See Section 11.3(b) of the CAT NMS Plan.
\189\ CAT Funding Model Approval Order at 62629.
---------------------------------------------------------------------------
CAT Fee 2024-1 provides for an equitable allocation of fees as it
complies with the requirements regarding the calculation of CAT Fees as
set forth in the CAT NMS Plan. For example, as described above, the
calculation of CAT Fee 2024-1 complies with the formula set forth in
Section 11.3(a) of the CAT NMS Plan. In addition, CAT Fee 2024-1 would
be charged to CEBBs and CEBSs in accordance with Section 11.3(a) of the
CAT NMS Plan. Furthermore, the Participants would be charged for their
designated share of Budgeted CAT Costs 2024-1 through a fee implemented
via the CAT NMS Plan, which would have the same fee rate as CAT Fee
2024-1.
In addition, as discussed above, each of the inputs into the
calculation of CAT Fee 2024-1--Budgeted CAT Costs 2024-1, the count for
the executed equivalent share volume for the prior 12 months, and the
projected executed equivalent share volume for the CAT Fee 2024-1
Period--are reasonable. Moreover, these inputs lead to a reasonable fee
rate for CAT Fee 2024-1 that is lower than other fee rates for
transaction-based fees. A reasonable fee rate allocated in accordance
with the requirements of the CAT Funding Model provides for an
equitable allocation of fees.
(4) CAT Fee 2024-1 Is Not Unfairly Discriminatory
CAT Fee 2024-1 is not an unfairly discriminatory fee. The SEC
approved the CAT Funding Model, finding that each aspect of the CAT
Funding Model satisfied the requirements of the Exchange Act. In
reaching this conclusion, the SEC analyzed the potential effect of CAT
Fees calculated pursuant to the CAT Funding Model on affected
categories of market participants, including Participants (including
exchanges and FINRA), Industry Members (including subcategories of
Industry Members, such as alternative trading systems, CAT Executing
Brokers and market makers), and investors generally, and considered
market effects related to equities and options, among other things. CAT
Fee 2024-1 complies with the requirements regarding the calculation of
CAT Fees as set forth in the CAT NMS Plan. In addition, as discussed
above, each of the inputs into the calculation of CAT Fee 2024-1 and
the resulting fee rate for
[[Page 72078]]
CAT Fee 2024-1 is reasonable. Therefore, CAT Fee 2024-1 does not impose
an unfairly discriminatory fee on Industry Members.
The Exchange believes the proposed fees established pursuant to the
CAT Funding Model promote just and equitable principles of trade, and,
in general, protect investors and the public interest, and are provided
in a transparent manner and with specificity in the Equities Price List
and the Options Fee Schedule. The Exchange also believes that the
proposed fees are reasonable because they would provide ease of
calculation, ease of billing and other administrative functions, and
predictability of a fee based on fixed rate per executed equivalent
share. Such factors are crucial to estimating a reliable revenue stream
for CAT LLC and for permitting Exchange members to reasonably predict
their payment obligations for budgeting purposes.
B. Self-Regulatory Organization's Statement on Burden on Competition
Section 6(b)(8) of the Act \190\ requires that the Exchange's rules
not impose any burden on competition that is not necessary or
appropriate in furtherance of the purpose of the Exchange Act. The
Exchange does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange notes that CAT Fee
2024-1 implements provisions of the CAT NMS Plan that were approved by
the Commission and is designed to assist the Exchange in meeting its
regulatory obligations pursuant to the Plan.
---------------------------------------------------------------------------
\190\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
In addition, all Participants (including exchanges and FINRA) are
proposing to introduce CAT Fee 2024-1 on behalf of CAT LLC to implement
the requirements of the CAT NMS Plan. Therefore, this is not a
competitive fee filing, and, therefore, it does not raise competition
issues between and among the Participants.
Furthermore, in approving the CAT Funding Model, the SEC analyzed
the potential competitive impact of the CAT Funding Model, including
competitive issues related to market services, trading services and
regulatory services, efficiency concerns, and capital formation.\191\
The SEC also analyzed the potential effect of CAT fees calculated
pursuant to the CAT Funding Model on affected categories of market
participants, including Participants (including exchanges and FINRA),
Industry Members (including subcategories of Industry Members, such as
alternative trading systems, CAT Executing Brokers and market makers),
and investors generally, and considered market effects related to
equities and options, among other things. Based on this analysis, the
SEC approved the CAT Funding Model as compliant with the Exchange Act.
CAT Fee 2024-1 is calculated and implemented in accordance with the CAT
Funding Model as approved by the SEC.
---------------------------------------------------------------------------
\191\ CAT Funding Model Approval Order at 62676-86.
---------------------------------------------------------------------------
As discussed above, each of the inputs into the calculation of CAT
Fee 2024-1 is reasonable and the resulting fee rate for CAT Fee 2024-1
calculated in accordance with the CAT Funding Model is reasonable.
Therefore, CAT Fee 2024-1 would not impose any burden on competition
that is not necessary or appropriate in furtherance of the purpose of
the Exchange Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Exchange Act \192\ and Rule 19b-4(f)(2)
thereunder,\193\ because it establishes or changes a due, or fee.
---------------------------------------------------------------------------
\192\ 15 U.S.C. 78s(b)(3)(A)(ii).
\193\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend the rule
change if it appears to the Commission that the action is necessary or
appropriate in the public interest, for the protection of investors, or
would otherwise further the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NYSEAMER-2024-50 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSEAMER-2024-50. 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 (https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSEAMER-2024-50 and should
be submitted on or before September 25, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\194\
---------------------------------------------------------------------------
\194\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19757 Filed 9-3-24; 8:45 am]
BILLING CODE 8011-01-P
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