62628 Federal Register / Vol. 88, No. 175 / Tuesday, September 12, 2023 / Notices 

1The Participants are: BOX Exchange LLC, Cboe 

BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe 

C2 Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe 

EDGX Exchange, Inc., Cboe Exchange, Inc., The 

Financial Industry Regulatory Authority, Inc. 

(‘‘FINRA’’), Investors Exchange LLC, Long-Term 

Stock Exchange, Inc., MEMX LLC, Miami 

International Securities Exchange, LLC, MIAX 

Emerald, LLC, MIAX PEARL, LLC, Nasdaq BX, Inc., 

Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq 

MRX, LLC, Nasdaq PHLX LLC, The Nasdaq Stock 

Market LLC, New York Stock Exchange LLC, NYSE 

American LLC, NYSE Arca, Inc., NYSE Chicago, 

Inc., and NYSE National, Inc. (collectively, the 

‘‘Participants,’’ ‘‘self-regulatory organizations,’’ or 

‘‘SROs’’). 

2The CAT NMS Plan is a national market system 

plan approved by the Commission pursuant to 

Section 11A of the Securities Exchange Act of 1934 

(‘‘Exchange Act’’) and the rules and regulations 

thereunder. See Securities Exchange Act Release 

No. 78318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 

2016) (‘‘CAT NMS Plan Approval Order’’). The CAT 

NMS Plan is Exhibit A to the CAT NMS Plan 

Approval Order. See CAT NMS Plan Approval 

Order, 81 FR at 84943–85034. The CAT NMS Plan 

functions as the limited liability company 

agreement of the jointly owned limited liability 

company formed under Delaware state law through 

which the Participants conduct the activities of the 

CAT (‘‘Company’’). Each Participant is a member of 

the Company and jointly owns the Company on an 

equal basis. The Participants submitted to the 

Commission a proposed amendment to the CAT 

NMS Plan on August 29, 2019, which they 

designated as effective on filing. On August 29, 

2019, the Participants replaced the CAT NMS Plan 

in its entirety with the limited liability company 

agreement of a new limited liability company, CAT 

LLC, which became the Company. See Securities 

Exchange Act Release No. 87149 (Sept. 27, 2019), 

84 FR 52905 (Oct. 3, 2019). The latest version of 

the CAT NMS Plan is available at https://

catnmsplan.com/about-cat/cat-nms-plan. 

3 15 U.S.C. 78k–1. 

4 17 CFR 242.608. 

5The Proposed Amendment modifies the existing 

funding model in Article XI. of the CAT NMS Plan. 

6See Letter from Brandon Becker, Chair, CAT 

NMS Plan Operating Committee, to Vanessa 

Countryman, Secretary, Commission (Mar. 13, 

2023) (‘‘Transmittal Letter’’). 

7See Securities Exchange Act Release No. 97151 

(Mar. 15, 2023), 88 FR 17086 (Mar. 21, 2023) 

(‘‘Notice’’). Comments received in response to the 

Notice can be found on the Commission’s website 

at https://www.sec.gov/comments/4-698/4-698- 

a.htm. 

8 17 CFR 242.608(b)(2)(i). 

9See Securities Exchange Act Release No. 97750 

(June 16, 2023), 88 FR 41142 (June 23, 2023). 

Comments received in response to the OIP can be 

found on the Commission’s website at https://

www.sec.gov/comments/4-698/4-698-a.htm. 

10 17 CFR 242.613. 

11See CAT NMS Plan, supra note 2. 

12The CAT NMS Plan defines ‘‘Industry 

Member’’ as ‘‘a member of a national securities 

exchange or a member of a national securities 

association.’’ See CAT NMS Plan, supra note 2, at 

Section 1.1. See also id. at Section 11.1(b). 

13 Id. at Section 11.2(b) and (e). 

14The CAT NMS Plan defines ‘‘CAT Reporter’’ as 

‘‘each national securities exchange, national 

securities association and Industry Member that is 

required to record and report information to the 

Central Repository pursuant to SEC Rule 613(c).’’ 

Id. at Section 1.1. 

15The CAT NMS Plan defines ‘‘Execution Venue’’ 

as ‘‘a Participant or an alternative trading system 

(‘ATS’) (as defined in Rule 300 of Regulation ATS) 

that operates pursuant to Rule 301 of Regulation 

ATS (excluding any such ATS that does not execute 

orders).’’ Id. 

16 Id. 

17CAT NMS Plan, supra note 2, at Section 

11.2(c). See id. at Article XI for additional detail. 

18See Securities Exchange Act Release No. 88890, 

85 FR 31322 (May 22, 2020). 

19 ‘‘Full Implementation of CAT NMS Plan 

Requirements’’ means ‘‘the point at which the 

Participants have satisfied all of their obligations to 

build and implement the CAT, such that all CAT 

system functionality required by Rule 613 and the 

CAT NMS Plan has been developed, successfully 

tested, and fully implemented at the initial Error 

Rates specified by Section 6.5(d)(i) or less, 

including functionality that efficiently permits the 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98290; File No. 4–698] 

Joint Industry Plan; Order Approving 

an Amendment to the National Market 

System Plan Governing the 

Consolidated Audit Trail; Notice 

September 6, 2023. 

I. Introduction 

On March 13, 2023, the Consolidated 

Audit Trail, LLC (‘‘CAT LLC’’), on 

behalf of the Participants 1 to the 

National Market System Plan Governing 

the Consolidated Audit Trail (‘‘CAT 

NMS Plan’’ or ‘‘Plan’’),2 filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

11A of the Exchange Act 3 and Rule 608 

of Regulation National Market System 

(‘‘Regulation NMS’’) thereunder,4 a 

proposed amendment to the CAT NMS 

Plan (‘‘Proposed Amendment’’) to 

implement a revised funding model 

(‘‘Executed Share Model’’) for the 

consolidated audit trail (‘‘CAT’’) 5 and to 

establish a fee schedule for Participant 

CAT fees in accordance with the 

Executed Share Model (‘‘Proposed 

Participant Fee Schedule’’).6 The 

Proposed Amendment was published 

for comment in the Federal Register on 

March 21, 2023.7

On June 16, 2023, the Commission 

instituted proceedings pursuant to Rule 

608(b)(2)(i) of Regulation NMS 8 to 

determine whether to disapprove the 

Proposed Amendment or to approve the 

Proposed Amendment with any changes 

or subject to any conditions the 

Commission deems necessary or 

appropriate after considering public 

comment (‘‘OIP’’).9

This order approves the Proposed 

Amendment. 

II. Background 

On July 11, 2012, the Commission 

adopted Rule 613 of Regulation NMS, 

which required the SROs to submit a 

national market system (‘‘NMS’’) plan to 

create, implement and maintain a 

consolidated audit trail that would 

capture customer and order event 

information for orders in NMS 

securities.10 On November 15, 2016, the 

Commission approved the CAT NMS 

Plan.11 Under the CAT NMS Plan, the 

Operating Committee of the Company, 

of which each Participant is a member, 

has the discretion (subject to the 

funding principles set forth in the Plan) 

to establish funding for the Company to 

operate the CAT, including establishing 

fees to be paid by the Participants and 

Industry Members.12

Under the CAT NMS Plan, CAT fees 

are to be implemented in accordance 

with various funding principles, 

including an ‘‘allocation of the 

Company’s related costs among 

Participants and Industry Members that 

is consistent with the Exchange Act 

taking into account . . . distinctions in 

the securities trading operations of 

Participants and Industry Members and 

their relative impact upon the Company 

resources and operations’’ and the 

‘‘avoid[ance of] any disincentives such 

as placing an inappropriate burden on 

competition and reduction in market 

quality.’’ 13 The Plan specifies that, in 

establishing the funding of the 

Company, the Operating Committee 

shall establish ‘‘a tiered fee structure in 

which the fees charged to: (1) CAT 

Reporters 14 that are Execution 

Venues,15 including ATSs,16 are based 

upon the level of market share; (2) 

Industry Members’ non-ATS activities 

are based upon message traffic; and (3) 

the CAT Reporters with the most CATrelated activity (measured by market 

share and/or message traffic, as 

applicable) are generally comparable 

(where, for these comparability 

purposes, the tiered fee structure takes 

into consideration affiliations between 

or among CAT Reporters, whether 

Execution Venues and/or Industry 

Members).’’ 17

On May 15, 2020, the Commission 

adopted amendments to the CAT NMS 

Plan designed to increase the 

Participants’ financial accountability for 

the timely completion of the CAT 

(‘‘Financial Accountability 

Amendments’’).18 The Financial 

Accountability Amendments added 

Section 11.6 to the CAT NMS Plan to 

govern the recovery from Industry 

Members of any fees, costs, and 

expenses (including legal and 

consulting fees, costs and expenses) 

incurred by or for the Company in 

connection with the development, 

implementation and operation of the 

CAT from June 22, 2020 until such time 

that the Participants have completed 

Full Implementation of CAT NMS Plan 

Requirements 19 (‘‘Post-Amendment 


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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).’’ CAT NMS Plan, supra note 2, at 

Section 1.1. 

20See CAT NMS Plan, supra note 2, at Section 

11.6(a)(i). 

21 Id. at Section 11.6(a)(ii) and (iii). 

22 15 U.S.C. 78k–1. 

23 17 CFR 242.608(b)(2). 

24See 15 U.S.C. 78k–1(a)(3)(B). 

25See 17 CFR 242.608. 

26See 17 CFR 242.608(b)(2). 

27 Id. 

28See CAT NMS Plan, supra note 2, at Section 

11.3(a) and (b). 

29See Notice, supra note 7, 88 FR at 17086. 

30See infra Section III.A.4. for the definition of 

CAT Executing Broker. 

Expenses’’). Section 11.6 establishes 

target deadlines for four Financial 

Accountability Milestones (Periods 1, 2, 

3 and 4) 20 and reduces the amount of 

fee recovery available to the Participants 

if these deadlines are missed.21

III. Discussion and Commission 

Findings 

After careful review, the Commission, 

pursuant to Section 11A of the 

Exchange Act,22 and Rule 608(b)(2) 23

thereunder, is approving the Proposed 

Amendment. Section 11A of the 

Exchange Act authorizes the 

Commission, by rule or order, to 

authorize or require the self-regulatory 

organizations to act jointly with respect 

to matters as to which they share 

authority under the Exchange Act in 

planning, developing, operating, or 

regulating a facility of the national 

market system.24 Rule 608 of Regulation 

NMS authorizes two or more SROs, 

acting jointly, to file with the 

Commission proposed amendments to 

an effective NMS plan,25 and further 

provides that the Commission shall 

approve an amendment to an effective 

NMS plan if it finds that the amendment 

is necessary or appropriate in the public 

interest, for the protection of investors 

and the maintenance of fair and orderly 

markets, to remove impediments to, and 

perfect the mechanisms of, a national 

market system, or otherwise in 

furtherance of the purposes of the 

Exchange Act.26

The Participants have sufficiently 

demonstrated that the proposed 

allocation of fees is reasonable. There 

are a number of potential approaches to 

allocating the costs of operating the 

CAT, all of which have relative 

strengths and weaknesses. In adopting 

Rule 613 and approving the CAT NMS 

Plan, the Commission determined that 

the CAT was appropriate in order to 

enable the SROs and the Commission to 

fulfill their responsibilities to oversee 

the equities and options markets. The 

CAT NMS Plan requires both Execution 

Venues (which include the Participants) 

and Industry Members (which include 

CAT Executing Brokers) to fund the 

CAT. The proposed one-third allocation 

of CAT fees to the applicable Participant 

in a transaction, the CAT Executing 

Broker for the buyer in a transaction and 

the CAT Executing Broker for the seller 

in a transaction, assesses an equal fee to 

the three primary roles in a transaction: 

the buyer, seller and market regulator. 

In our view, allocating the costs for the 

CAT among the three parties who play 

significant roles in transactions 

reportable to the CAT in this manner 

represents a reasonable method of 

allocating costs among the parties who 

participate in and benefit from those 

markets. 

Commenters expressed concern that 

the Participant exchanges and FINRA 

would pass their share of costs on to 

Industry Members. But the Exchange 

Act expressly contemplates the ability 

of the Participants to recoup the costs of 

fulfilling their statutory obligations 

under the Exchange Act. And, as we 

explained in adopting Rule 613 and 

approving the CAT NMS Plan, the CAT 

is important to the performance of these 

regulatory activities in modern, 

interconnected markets, to the ultimate 

benefit of investors and market 

participants. Moreover, these costs will 

not be unchecked. The Participants 

must file their proposed rule changes 

relating to fees with the Commission. 

Those proposed rule changes are 

published by the Commission and there 

is an opportunity for public comment. 

CAT fees, like any fees the Participants 

collect from their members to fund their 

SRO responsibilities in market and 

member regulation, must be consistent 

with applicable statutory standards 

under the Exchange Act, including 

being reasonable, equitable and not 

unfairly discriminatory. 

We also conclude that the use of 

executed equivalent share volume 

provides a reasonable basis for the 

calculation of these fees. Executed 

equivalent share volume is readily 

determinable and—because it is based 

on trading activity, which impacts CAT 

costs—provides a reasonable proxy for 

the costs to CAT, allowing CAT 

Reporters to be assessed fees 

corresponding to the cost burden they 

impose on the CAT. The use of CAT 

Executing Brokers is also appropriate 

because the proposed Executed Share 

Model is based on executed equivalent 

shares (emphasis added). Therefore, 

charging the CAT Executing Brokers 

would reflect their executing role in 

each transaction, which is already 

recorded in transaction reports from the 

exchanges and FINRA’s equity trade 

reporting facilities for calculating the 

CAT fees. Because such entities are 

already identified and their CAT fees 

are known, this method could 

streamline the billing process and allow 

such entities to calculate their own fees. 

We also conclude that the division of 

fees into Prospective CAT Fees and the 

Historical CAT Assessment provides a 

reasonable method of allowing 

Participants to recoup their significant 

expenditures on the development of 

CAT to date while ensuring funding for 

future operations of the system. And the 

provision of fee calculation information, 

approach to billing and collection of 

fees, conforming changes and the 

Proposed Participant Fee Schedule are 

all reasonable. The Commission is 

therefore approving the Proposed 

Amendment.27

A. Funding Model 

1. Overview 

CAT LLC proposes to replace the 

funding model set forth in Article XI of 

the CAT NMS Plan (‘‘Original Funding 

Model’’) with the Executed Share 

Model. The Original Funding Model 

involved a bifurcated approach, where 

costs associated with building and 

operating the CAT would be borne by 

(1) Industry Members (other than 

alternative trading systems (‘‘ATSs’’) 

that execute transactions in Eligible 

Securities (‘‘Execution Venue ATSs’’)) 

through fixed tiered fees based on 

message traffic for Eligible Securities, 

and (2) Participants and Industry 

Members that are Execution Venue 

ATSs for Eligible Securities through 

fixed tiered fees based on market 

share.28 In contrast, the Executed Share 

Model would charge fees based on the 

executed equivalent share volume of 

transactions in Eligible Securities.29 In 

addition, instead of charging fees to 

Industry Members, under the Executed 

Share Model, fees would be charged to 

each Industry Member that is a CAT 

Executing Broker 30 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 


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31See Notice, supra note 7, 88 FR at 17087. 

32 Id. at 17086; see also proposed Section 11.3(a). 

The defined term ‘‘CAT Fees’’ applies specifically 

to CAT fees related to Prospective CAT Costs. Id. 

33See Notice, supra note 7, 88 FR at 17086; see 

also proposed Section 11.3(b). 

34See Notice, supra note 7, 88 FR at 17093; see 

also proposed Section 11.3(a)(iii), proposed Section 

11.3(b)(iii). 

35See infra Section III.A.5.a. (Prospective CAT 

Fees—Fee Rate Formula) for the definition and 

description of the calculation of the Fee Rate. See 

also infra notes 1100–1102 and accompanying text 

(stating that the anticipated CAT Fee Rate and the 

fee rate for Historical CAT Assessments are 

expected to be relatively small). 

36See Notice, supra note 7, 88 FR at 17095; see 

also proposed Section 11.3(a)(iii), proposed Section 

11.3(b)(iii). 

37See Notice, supra note 7, 88 FR at 17094; see 

also proposed Section 11.3(a)(ii). 

38The actual amount of Past CAT Costs to be 

recovered through the Historical CAT Assessments 

would be reduced by an amount of ‘‘Excluded 

Costs.’’ The resulting amount would be defined as 

‘‘Historical CAT Costs’’ in proposed Section 

11.3(b)(i)(C) of the CAT NMS Plan. See infra 

Section III.A.6.a. for a discussion of Historical CAT 

Costs. 

39See proposed Section 11.3(b)(ii). 

40See Notice, supra note 7, 88 FR at 17088. 

41 Id. 

42 15 U.S.C. 78s(b). 

43See Notice, supra note 7, 88 FR at 17086, 

17122. 

44Proposed Section 11.3(b)(iii)(B)(III) would 

prohibit any Participant from filing proposed rule 

filings pursuant to Section 19(b) of the Exchange 

Act regarding any Historical CAT Assessment until 

any applicable Financial Accountability Milestone 

in Section 11.6 of the CAT NMS Plan has been 

satisfied. 

45See Letters to Vanessa Countryman, Secretary, 

Commission, from Stephen John Berger, Managing 

Director, Global Head of Government and 

Regulatory Policy, Citadel Securities, dated July 14, 

2023 (‘‘Citadel July Letter’’); August 22, 2023 

(‘‘Citadel August Letter’’); Marcia E. Asquith, 

Corporate Secretary, EVP, Board and External 

Relations, FINRA, dated May 25, 2023 (‘‘FINRA 

May 2023 Letter’’); April 11, 2023 (‘‘FINRA April 

2023 Letter’’); and June 22, 2022 (‘‘FINRA June 2022 

Letter’’) (the FINRA June 2022 Letter was submitted 

in response to the prior funding proposal and was 

attached and incorporated by reference in the 

FINRA April 2023 Letter); Ellen Greene, Managing 

Director, Equities & Options Market Structure, and 

Joseph Corcoran, Managing Director, Associate 

General Counsel, SIFMA, dated July 13, 2023 

(‘‘SIFMA July 2023 Letter’’); June 5, 2023 (‘‘SIFMA 

June 2023 Letter’’); May 2, 2023 (‘‘SIFMA May 2023 

Letter’’); January 12, 2023 (‘‘SIFMA January 2023 

Letter’’); December 14, 2022 (‘‘SIFMA December 

2022 Letter’’); October 7, 2022 (‘‘SIFMA October 

2022 Letter’’); and June 22, 2022 (‘‘SIFMA June 

2022 Letter’’) (the SIFMA June 2022 Letter, SIFMA 

October 2022 Letter, SIFMA December 2022 Letter 

and SIFMA January 2023 Letter were submitted in 

response to the prior funding proposal and 

incorporated by reference in the SIFMA May 2023 

Letter); Joanna Mallers, Secretary, FIA Principal 

Traders Group, dated July 14, 2023 (‘‘FIA Letter’’); 

Douglas A. Cifu, Chief Executive Officer, Virtu 

Financial, dated July 13, 2023 (‘‘Virtu Letter’’). See 

infra note 58. 

46See Notice, supra note 7, 88 FR at 17122. 

47See FINRA June 2022 Letter at 4. 

48See FINRA April 2023 Letter at 8. 

49 Id. The commenter also stated that ‘‘it is 

unclear how assessing on FINRA the largest 

allocation of the SRO portion of CAT expenses 

‘provides funding for regulatory costs’ in any 

reasonable and equitable sense comparable to the 

TAF . . .’’ Id. 

50FINRA May 2023 Letter at 3. 

51Citadel July Letter at 27. 

52 Id. The commenter also stated that FINRA has 

sought to avoid increases in the TAF. Id. 

Securities (‘‘CAT Executing Broker for 

the Seller’’ or ‘‘CEBS’’).31

Under the Executed Share Model, 

CAT LLC proposes to establish two 

categories of CAT fees. The first 

category of CAT fees would be fees 

(‘‘CAT Fees’’) payable by Participants 

and Industry Members that are CAT 

Executing Brokers for the Buyer and for 

the Seller with regard to CAT costs not 

previously paid by the Participants 

(‘‘Prospective CAT Costs’’).32 The 

second category of CAT fees would be 

fees (‘‘Historical CAT Assessments’’) to 

be payable by Industry Members that are 

CAT Executing Brokers for the Buyer 

and for the Seller with regard to CAT 

costs previously paid by the Participants 

(‘‘Past CAT Costs’’).33

For each category of fees, each CEBB 

and each CEBS will be required to pay 

a CAT fee for each such transaction in 

Eligible Securities in the prior month 

based on CAT Data.34 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 

reasonably determined Fee Rate,35 as 

described below.36 Participants would 

incur CAT Fees only for Prospective 

CAT Costs and the Participant CAT Fee 

will be calculated by multiplying the 

number of executed equivalent shares in 

the transaction by one-third and by the 

reasonably determined Fee Rate.37 The 

Participants’ one-third share of 

Historical CAT Costs 38 and such other 

additional Past CAT Costs as reasonably 

determined by the Operating Committee 

will be paid by the cancellation of loans 

made to the Company on a pro rata basis 

based on the outstanding loan amounts 

due under the loans.39

FINRA CAT would be responsible for 

calculating the CAT fees and submitting 

invoices to the CAT Executing Brokers 

based on this CAT Data.40 All data used 

to calculate the fees under the Executed 

Share Model would be CAT Data, and, 

therefore, it would be directly available 

through the CAT to FINRA CAT for 

calculating CAT fees.41

Once the Proposed Amendment has 

been approved by the Commission, the 

Participants would separately file 

proposed rule filings pursuant to 

Section 19(b) of the Exchange Act 42 to 

establish the amounts of the proposed 

CAT Fees and Historical CAT 

Assessments to be charged to Industry 

Members, subject to the satisfaction of 

applicable Financial Accountability 

Milestones as set forth in Section 11.6 

of the CAT NMS Plan and the 

implementation of the billing and 

collection system for the CAT fees.43 In 

each proposed rule filing, if the 

Participants seek to recover amounts 

under the Financial Accountability 

Milestones, they would need to discuss 

their completion of the applicable 

milestone.44

2. Allocation of Fee Among Participants 

and Industry Members 

Under the Executed Share Model, 

CAT fees would be allocated one-third 

to the applicable Participant, one-third 

to the CEBS and one-third to the CEBB 

of a transaction. Certain commenters 

opposed the proposed allocation.45

FINRA stated that, while the Proposed 

Amendment justified the fairness of the 

Executed Share Model because it would 

operate like other fees, like FINRA’s 

Trading Activity Fee (‘‘TAF’’), Section 

31 fees, and the options regulatory fee,46

the Proposed Amendment did not 

support why those fee frameworks 

should be used as a model in this 

context.47 For example, FINRA stated 

that the TAF is designed to recover the 

costs of FINRA’s regulatory activities, 

while the CAT fees are intended to align 

with the costs to build, operate and 

administer the CAT.48 Further, FINRA 

stated that the Proposed Amendment 

has insufficiently explained the 

connection between the TAF and CAT 

fees, merely stating that they are similar 

fees because they are transaction-based 

fees used to provide funding for 

regulatory costs.49 FINRA stated that 

‘‘CAT LLC’s observations superficially 

focus on the fact that these fees also use 

transaction-based metrics (and may be 

assessed on members) and neglects 

other factors relevant to the analysis 

including, for example, that these fees 

are used in combination with other 

funding mechanisms and metrics to 

support an overall funding 

framework.’’ 50

Another commenter stated that the 

proposed CAT funding model cannot be 

compared to Section 31 fees, the TAF, 

or the options regulatory fee because the 

commenter believes that CAT fees 

appear to be unconstrained and out of 

the industry’s control.51 The commenter 

explained that, unlike the proposed 

CAT fees, Section 31 fees are based on 

an annual budget set by Congress and 

the options regulatory fee is only 

applied to customer transactions and 

thus can be easily passed-on to other 

market participants (unlike CAT fees for 

market making activity).52 Additionally, 


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53 Id. This commenter stated that it is inequitable 

to require Industry Members to fund CAT costs in 

perpetuity when they lack representation on the 

Operating Committee and therefore have little 

transparency into the drivers of the costs, and there 

is no plan to contain the costs. See id. at 2. 

54See SIFMA June 2022 Letter at 4. 

55 Id. 

56See SIFMA October 2022 Letter at 7. See also 

Citadel August Letter at 5. 

57See FINRA June 2022 Letter at 3. 

58See Securities Exchange Act Release Nos. 

94984 (May 25, 2022), 87 FR 33226 (June 1, 2022); 

96394 (Nov. 28, 2022), 87 FR 74183 (Dec. 2, 2022); 

and Letter from Michael Simon, Chair Emeritus, 

CAT NMS Plan Operating Committee, to Vanessa 

Countryman, Secretary, Commission (Feb. 15, 

2023). 

59See FINRA April 2023 Letter at 5 (citing Letter 

to Vanessa Countryman, Secretary, Commission, 

from Lawrence Harris, Fred V. Keenan Chair in 

Finance, Professor of Finance and Business and 

Economics, U.S.C. Marshall School of Business, 

dated June 21, 2022). 

60 Id. Another commenter suggested a review of 

alternative approaches to funding, such as the 

extent to which CAT could be funded by Section 

31 fees. See Letter to Vanessa Countryman, 

Secretary, Commission, from Kirsten Wegner, Chief 

Executive Officer, Modern Markets Initiative, dated 

July 13, 2023 (‘‘MMI July Letter’’), at 4. 

61See SIFMA May 2023 Letter at 6; SIFMA June 

2023 Letter at 1–2. The commenter also stated that 

the Proposed Amendment provides unsupported 

conclusory statements that it meets the 

requirements of the Exchange Act. See SIFMA June 

2023 Letter at 2. See also id. at n 11; FIA Letter at 

2. 

62See SIFMA May 2023 Letter at 2. See also 

SIFMA June 2022 Letter at 1–2 (stating that the 

proposed cost allocation methodology is 

inconsistent with Exchange Act fee standards 

because most costs would be imposed on Industry 

Members). 

63The commenter stated that the CAT annual 

budget increased over 30% in the last year. See 

SIFMA June 2023 Letter at 4. See also Virtu Letter 

at 4 (stating that the budget increase indicated that 

the Industry Members could be subject to everincreasing fees with no say on the budget). See also 

FIA Letter at 3 (stating that ‘‘[w]ith little to no skinin-the-game, the Participants will not be 

incentivized to control costs.’’). See infra Section 

III.A.5.b (discussing budgeted CAT costs and 

comments suggesting a review mechanism to 

control costs). 

64See SIFMA June 2023 Letter at 3, 4. The 

commenter stated that approving such a proposal 

would ‘‘directly threaten[ ] efficiency, competition, 

and capital formation in U.S. securities markets.’’ 

Id. at 4. The commenter also quoted a Commission 

release stating that the Participants are potentially 

conflicted in allocating CAT fees to themselves and 

the Industry Members. See Securities Exchange Act 

Release No. 89618 (Aug. 19, 2020), 85 FR 65470, 

65482 (Oct. 15, 2020). Another commenter stated 

that the allocation of 80% to the industry was 

unfair. See Virtu Letter at 4. 

65See FIA Letter at 2. 

66 Id. 

67See Virtu Letter at 2. 

68 15 U.S.C. 78f(b)(4). 

69 5 U.S.C. 551 et seq. 

70See Citadel July Letter at 17. 

71 Id. 

72 Id. at 1, 16, 22. 

73 Id. at 1, 21, 22. 

74 Id. at 21. 

75 Id. 

76See Citadel July Letter at 21. 

the commenter stated that there is no 

precedent for fees to be allocated to 

Industry Members in perpetuity, stating 

that this would contravene the 

Exchange Act.53

One commenter disagreed with the 

Participants’ statement that the 

Executed Share Model’s similarity to 

other transaction-based fees approved 

by the Commission is adequate 

justification for consistency with the 

Exchange Act.54 The commenter stated 

that similarity to other transaction-based 

fees is not an adequate basis to show 

that the Executed Share Model is 

consistent with relevant standards; each 

proposed fee must be individually 

supported.55 For example, the 

commenter stated that the Participants 

compared the Executed Share Model to 

Section 31 fees as justification for the 

Executed Share Model, but failed to 

address the differences between the 

Executed Share Model and Section 31 

fees, such as the Executed Share 

Model’s treatment of high-volume trades 

in low-priced stocks while Section 31 

fees are based on the notional value of 

a trade.56

Commenters also questioned the 

Participants’ justifications for the onethird allocation methodology. FINRA 

stated that the Proposed Amendment 

did not justify why the proposed 

allocation by thirds to the Participant, 

buy-side and sell-side is equitable in the 

context of the CAT NMS Plan.57 FINRA 

also stated that the Proposed 

Amendment did not consider 

alternatives suggested by commenters 

on a prior proposed funding model,58

such as a model similar to Section 31 

fees and a CAT funding model based on 

the ‘‘Cost Recovery Principle’’ and the 

‘‘Benefits Received Principle.’’ 59 FINRA 

urged the Commission to require those 

alternatives to be analyzed.60

One commenter stated that the 

Participants have not met their burden 

to demonstrate the proposed allocation 

is consistent with the Exchange Act fee 

standards and not arbitrary.61 The 

commenter stated that because FINRA is 

funded by Industry Members, Industry 

Members would pay over 80% of CAT 

costs since they must pay not only their 

own share but FINRA’s as well; 

therefore, the Commission should 

disapprove the proposal.62 The 

commenter stated that the Proposed 

Amendment does not explain how 

allocating 80% of total CAT costs to the 

industry in perpetuity without a 

mechanism to limit the budget 63 is 

consistent with the Exchange Act and 

guidance on SRO filings related to fees 

because the industry has no role in the 

governance, oversight or design of CAT 

and does not benefit from the CAT.64

Another commenter stated that Industry 

Members will bear significantly more 

costs than the Proposal suggests if the 

Participants decide to charge their 

members to fund their share of CAT 

fees.65 The commenter stated that ‘‘[i]f 

the Participants were to do this, it 

would render the entire Funding Model 

meaningless, with Industry Members 

bearing 100% of CAT costs.’’ 66 Another 

commenter also stated that it was 

inappropriate to place responsibility for 

funding the CAT ‘‘on industry members 

that do not stand to benefit from it.’’ 67

One commenter stated that the 

Proposed Amendment does not 

demonstrate that it is equitable, as 

required by Section 6(b)(4),68 or 

rational, as required by the 

Administrative Procedure Act,69 to 

allocate two-thirds of CAT costs to 

Industry Members, stating that ‘‘there is 

no suggestion that Industry Members 

somehow receive 67% of the benefits 

from CAT.’’ 70 Furthermore, the 

commenter stated that the Proposed 

Amendment would result in an 

inequitable allocation to a small number 

of Industry Members.71

The commenter also stated that the 

Proposed Amendment would result in 

the allocation of all of the costs to build 

and operate the CAT to Industry 

Members and would therefore be 

inconsistent with Section 6(b)(4) to 

equitably allocate reasonable fees.72 The 

commenter stated that, in addition to 

the proposed allocation to Industry 

Members, FINRA’s 11% cost allocation 

would be passed-on to Industry 

Members and that exchanges would also 

pass-on their 22% cost allocation.73 The 

commenter stated that, with FINRA’s 

allocation, 78% of the costs to build and 

operate the CAT would be allocated to 

Industry Members under the Proposed 

Amendment.74 The commenter stated 

that 78% is the same amount allocated 

to Industry Members in a prior CAT 

funding model proposal from 2021, and 

stated that in the Proposed Amendment, 

the Operating Committee concedes that 

the 2021 allocation ‘‘may have an 

adverse effect on competition, liquidity 

or other aspects of market structure,’’ 75

however the Proposed Amendment does 

not explain why using a different 

metric—executed share volume rather 

than message traffic—to create the same 

allocation would not result in similar 

consequences.76

Further, the commenter stated that 

Industry Members may also be required 


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77 Id. at 22. See also Citadel August Letter at 2. 

78See Citadel July Letter at 22. See also Notice, 

supra note 7, 88 FR at 17107. The commenter also 

stated that while the Proposed Amendment 

describes the funding model as ‘‘neutral as to 

location and manner of execution,’’ counterparties 

to off-exchange transactions would receive higher 

fees than on-exchange transactions if exchanges 

choose not to pass-on their cost allocation to 

Industry Members. See Citadel July Letter at 21. See 

also Notice, supra note 7, 88 FR at 17087. 

79Citadel July Letter at 22. See also id. at 16. See 

also Citadel August Letter at 2 (stating that an 

allocation of 100% of CAT costs to Industry 

Members cannot be lawful). 

80Citadel July Letter at 22. 

81 Id. at 10. 

82 Id. at 15. 

83 Id. 

84See Citadel August Letter at 2. 

85 Id. 

86SIFMA June 2022 Letter at 4. See also SIFMA 

January 2023 Letter at 4. 

87SIFMA June 2022 Letter at 4–5. See also SIFMA 

January 2023 Letter at 5; Virtu Letter at 3. 

88See Citadel July Letter at 17. See also Virtu 

Letter at 2 (noting that Industry Members ‘‘already 

provide the Plan Participants with a very 

substantial level of funding through membership 

fees, registration and licensing fees, dedicated 

regulatory fees, and options regulatory fees’’). 

89See Citadel July Letter at 17 (further stating, 

‘‘Industry Members are already bearing nearly all of 

the total CAT-related costs, at a rate much higher 

than the Commission estimated in its approval of 

the 2016 CAT NMS Plan.’’ Id. at 18). 

90 Id. 

91See Notice, supra note 7, 88 FR at 17104. 

92See SIFMA May 2023 Letter at 3. See also 

SIFMA January 2023 Letter at 2, 3–4. 

93See SIFMA May 2023 Letter at 6–7. See also 

SIFMA January 2023 Letter at 3; Notice, supra note 

7, 88 FR at 17104. 

94SIFMA January 2023 Letter at 3. 

95See SIFMA May 2023 Letter at 7. 

96See Citadel July Letter at 17–18. 

97 Id. at 18. 

to pay the exchange cost allocation,77

citing a statement in the Proposed 

Amendment that ‘‘each Participant may 

determine to charge their members fees 

to fund their share of the CAT fees.’’ 78

The commenter stated that if exchanges 

choose to do this, then Industry 

Members would be responsible for 

100% of CAT costs, which would 

‘‘distort incentives and hinder the 

prioritization of critical cost-control 

measures, as the firms governing CAT 

are not bearing any of the associated 

costs.’’ 79 The commenter requested that 

the Commission prohibit exchanges 

from passing-on their CAT costs.80 The 

commenter also stated that even after 

restructuring the funding model to base 

allocation on share volume instead of 

message traffic, as in prior funding 

model proposals, the allocation to 

exchanges stayed the same, arguing that 

the exchanges are unwilling to allocate 

themselves more than 22% of total 

costs.81 The commenter stated that the 

proposed allocation methodology is 

inconsistent with the Exchange Act 

because of the excessive percentage of 

total costs proposed to be allocated to 

Industry Members and the unfair 

method of allocating costs among 

Industry Members,82 stating, ‘‘[t]he 

allocation methodology will have a 

direct and negative impact on market 

efficiency, competition, and capital 

formation, and the Commission must 

comprehensively assess those impacts 

before approving this filing.’’ 83

The commenter stated that the 

Proposed Amendment does not provide 

the percentage of total costs to build and 

operate the CAT that will be borne by 

Industry Members in practice.84 The 

commenter stated that it is necessary to 

determine the ultimate allocation of 

CAT costs to evaluate whether the 

proposed allocation is consistent with 

the Exchange Act, arguing that the 

statements made in support of the 

allocation were premised on the 

Participants being responsible for onethird of total CAT costs, and that if this 

is untrue, ‘‘the filing must be completely 

reconsidered, taking into account (a) the 

impact on market efficiency, 

competition and capital formation of 

allocating this magnitude of additional 

costs to Industry Members, (b) whether 

such a lopsided allocation is fair and 

equitable, and (c) the implications for 

CAT governance and budget control if 

the firms governing CAT do not have 

any skin-in-the-game.’’ 85

One commenter stated that the 

Participants do not account for ‘‘the 

time and expense Industry Members 

have devoted to developing and 

maintaining internal systems to be able 

to report the [sic] CAT, as well as the 

time and expense Industry Members 

have devoted to assisting the Operating 

Committee with its job of developing 

reporting specifications that allow the 

CAT to achieve its regulatory purpose’’ 

in the proposed allocation 86 and that 

‘‘this omission is a flaw with the 

Participants’ decision to allocate twothirds of the CAT costs to Industry 

Members and its inclusion would 

demonstrate that the Participants’ 

Executed Share Model does not provide 

for the equitable allocation of reasonable 

fees.’’ 87

Similarly, one commenter stated that 

the allocation does not take into account 

fees currently paid by the industry and 

implementation costs incurred by 

Industry Members to comply with CAT 

reporting requirements.88 The 

commenter stated that Industry 

Members already provide funding for 

regulatory matters to exchanges through 

regulatory fees, membership fees, 

market data fees, and registration fees, 

and that these fees must be factored into 

any equitable or rational allocation of 

CAT costs.89 The commenter stated that 

although the Proposed Amendment 

argues that there is no precedent for 

regulatory fees to be determined based 

on the cost of compliance of a regulated 

entity, it is necessary to take into 

account all CAT-related costs including 

those already allocated to Industry 

Members to assess whether the 

Proposed Amendment is equitable.90

Commenters also objected to 

statements made in the Proposed 

Amendment that the complexity of 

Industry Member business models 

contributes substantially to the costs of 

the CAT.91 One commenter stated that 

the proposed allocation of two-thirds of 

CAT costs to Industry Members is 

unfair, unreasonable and arbitrary 

because the Participants are equally 

responsible for the complexity of 

trading activity in the markets.92 The 

commenter disagreed with the 

Participants’ argument that the 

allocation satisfies Exchange Act fee 

standards because Industry Members 

and the complexity of their business 

models drive the costs of the CAT, by 

stating that the examples of 

complexities provided were developed 

to address order types, activities and fee 

structures (such as the maker-taker fee 

structure) established by the Participant 

exchanges.93 The commenter stated that 

the Participants are just as responsible 

for such cost-driving complex trading 

activity in the equity and options 

markets as Industry Members due to the 

‘‘large number of equity and options 

exchanges established by the exchange 

families with fundamentally different 

execution models and order types.’’ 94

The commenter stated that the 

Participant exchanges have not analyzed 

how their own business decisions have 

resulted in the complexity of Industry 

Member order routing practices and 

CAT costs.95 Another commenter stated 

that the complexity arguments in the 

Proposed Amendment contradict 

statements from the Operating 

Committee that stringent performance 

and other requirements for processing 

CAT data are significant drivers of CAT 

costs,96 and that the complexity 

arguments suggest that costs should be 

allocated evenly among Industry 

Members, not just a small group of 

Industry Members based on volume.97

Commenters also disagreed with other 

justifications made in the Proposed 

Amendment for the proposed allocation; 

specifically, that there are more Industry 

Members than Participants and that 

Industry Members receive more in 


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98See Notice, supra note 7, 88 FR at 17104. 

99See SIFMA May 2023 Letter at 7. See also 

SIFMA January 2023 Letter at 4. 

100See SIFMA May 2023 Letter at 7. The 

commenter cited to the funding principles in 

Section 11.2 of the CAT NMS Plan. 

101See SIFMA January 2023 Letter at 4. See also 

SIFMA May 2023 Letter at 8; SIFMA June 2022 

Letter at 5; SIFMA October 2022 Letter at 4. This 

commenter also suggested another alternative 

allocation in which costs would be allocated to 

those Participants and Industry Members most 

directly responsible for the costs. Under this 

alternative, Industry Members would be responsible 

for the cost associated with initial ingestion of the 

data into the CAT system. The commenter 

explained that Participants would be responsible 

for the costs associated with the stages after the data 

is initially ingested into the CAT system because 

the regulators directly control and benefit from 

these stages of the CAT system after ingestion. See 

SIFMA June 2022 Letter at 5–6. 

102See Citadel July Letter at 17. The commenter 

also stated that the Proposed Amendment does not 

explain why it would be equitable to allocate 50% 

of total CAT costs to 20 Industry Members and 22% 

of total CAT costs to 24 exchanges. Id. 

103 Id. 

104 Id. at 13. See also Citadel August Letter at 2. 

105See Citadel July Letter at 13. 106 Id. at 2, 16, 19, 20. The commenter further 

stated that the Proposed Amendment is inconsistent 

with the Exchange Act because it cannot equitably 

allocate fees and will harm market efficiency, 

competition and capital formation. Id. at 16. 107 Id. at 3, 30, 31. The commenter stated that the 

Commission must consider reasonable alternatives 

and that the proposal should be rejected and 

replaced by a proposal incorporating the 

commenter’s recommendations. Id. at 30, 2. 108 Id. at 3, 30, 31. 109See Citadel July Letter at 3, 30, 31. 110 Id. at 3, 31. In response, CAT LLC stated that 

the Commission is not a party to the CAT NMS 

Plan, or subject to Rule 608 of Regulation NMS or 

Section 19(b) of the Exchange Act. See Letter to 

Vanessa Countryman, Secretary, Commission, from 

Brandon Becker, CAT NMS Plan Operating 

Committee Chair, dated July 28, 2023 (‘‘CAT LLC 

July 2023 Response Letter’’), at 31, n.144. 

111See Citadel July Letter at 30–31. 

112 Id. at 30. 

113 Id. at 3, 30. 

114See id. at 30. See also Citadel August Letter 

at 5. 

115See SIFMA May 2023 Letter at 8; FINRA April 

2023 Letter at 6–7; Citadel July Letter at 20; Citadel 

August Letter at 3; Letter to Vanessa Countryman, 

Secretary, Commission, from Lindsey Weber Keljo, 

Head—Asset Management Group, SIFMA, dated 

September 5, 2023 (‘‘SIFMA AMG Letter’’). See also 

Virtu Letter at 4 (noting the inherent difficulties in 

implementing systems and processes to track and 

pass through fees to the appropriate client firms and 

stating that executing brokers would likely end up 

absorbing the fees themselves). 

116See SIFMA May 2023 Letter at 8; see also 

Virtu Letter at 4. 

117See SIFMA May 2023 Letter at 8. 

118See FINRA April 2023 Letter at 6–7. 

119 Id. at 7. 

120See SIFMA AMG Letter at 2. 

revenue than the Participants.98 One 

commenter stated that these assertions 

are not relevant in demonstrating that 

the proposed allocation is fair and 

reasonable.99 The commenter stated that 

the Participants are justifying the 

allocation based on the ability to pay 

rather than cost generation, which the 

commenter believes is inconsistent 

‘‘with the Participant Exchanges’ 

proposed approach . . . of allocating 

CAT costs based on approximate 

responsibility for generating them . . .’’ 

and ‘‘with the historical CAT decision 

to allocate costs to the parties 

responsible for generating them.’’ 100

The commenter suggested an alternative 

allocation that would equally split CAT 

costs between Participant exchanges 

and Industry Members, while FINRA 

would be subject only to a nominal 

regulatory user fee to access CAT 

Data.101 Another commenter stated that, 

while most Industry Members will pay 

little to no CAT costs, 20 Industry 

Members will be responsible for 75% of 

the costs allocated to Industry 

Members.102 The commenter said this 

would contradict the Proposed 

Amendment’s arguments that there are 

more Industry Members than 

Participants and that Industry Members 

have greater financial resources than 

Participants because the Operating 

Committee would outnumber the 

Industry Members that would be paying 

the most in costs.103

The commenter also stated that the 

Proposed Amendment lacks support for 

the proposed allocation.104 The 

commenter stated that the Operating 

Committee has not met its burden to 

demonstrate that the proposed 

allocation is consistent with the 

Exchange Act.105 The commenter also 

stated that the Proposed Amendment 

does not consider the impact of the 

proposed allocation to Industry 

Members on market efficiency, 

competition and capital formation, 

particularly with respect to the costs the 

industry will incur to build systems to 

pass-through their CAT fees, the 

expected impact on volumes, the 

expected impact on retail investors, and 

the expected impact on market 

makers.106

The commenter suggested alternatives 

to the proposed allocation 

methodology.107 The commenter stated 

that Industry Members should not be 

allocated more than 50% of ongoing 

CAT costs (including FINRA’s 

allocation) due to their lack of industry 

voting representation and because they 

already bear nearly all of the total CATrelated costs.108 The commenter also 

suggested that exchanges should be 

prohibited from passing-on their CAT 

cost allocation to market participants,109

and that the Participants consider 

allocating costs to the Commission ‘‘to 

align incentives.’’ 110 The commenter 

recommended a consistent methodology 

for allocating costs to both Industry 

Members and exchanges.111 The 

commenter also recommended an 

allocation methodology that would 

ensure that ‘‘a small group of firms are 

not disproportionately bearing costs 

given that CAT is designed to facilitate 

market-wide surveillance across all 

market participants,’’ 112 and would not 

inequitably allocate costs to specific 

market segments (such as ‘‘retail trading 

activity in NMS stocks’’).113 The 

commenter suggested that the approach 

could have ‘‘(I) minimum and maximum 

fee levels, (II) appropriate calibrations 

for liquidity provision, (III) a volume 

component based on notional (instead 

of executed shares), and (IV) 

consideration of additional metrics that 

could achieve a more equitable outcome 

(e.g., broker-dealer capital).’’ 114

Commenters also raised concerns 

about statements in the Proposed 

Amendment that CAT costs would be 

passed on to investors.115 One 

commenter stated, ‘‘[s]uch an assertion 

is inaccurate because it is almost certain 

that there will be scenarios faced by 

Industry Members in which they will 

not be able to figure out who was 

responsible for generating certain 

Historical CAT Costs.’’ 116 The 

commenter stated that such assertions 

would minimize the Participants’ 

obligation to allocate fees consistent 

with Exchange Act fee standards and 

could result in the inequitable 

allocation of CAT fees to Industry 

Members under the mistaken belief that 

such fees would be passed down to 

investors.117 FINRA objected to 

statements in the Proposed Amendment 

that Industry Members can pass through 

to their customers their CAT cost 

allocation and additional costs resulting 

from an increase in FINRA fees.118

FINRA stated that ‘‘[s]ummarily stating 

that investors can be made to bear the 

costs resulting from the Funding Model 

without a detailed description of and 

transparency into how these fees would 

be determined or passed on to 

customers is inadequate, and does not 

provide interested parties sufficient 

information to consider the costs and 

benefits related to the Fee Proposal.’’ 119

Another commenter expressed concern 

that CAT costs will be passed-through to 

investors directly or indirectly by 

affecting the transaction prices of 

equities, stating that this could 

negatively impact the investment 

returns of long-term investors (including 

retail investors).120 The commenter 

stated that the Participants have failed 

to analyze how passing-through CAT 

costs to investors is consistent with 

Exchange Act fee standards, and that the 

Commission has not fully considered 


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121 Id. at 2, 3. The commenter stated that, 

‘‘[u]nder the Exchange Act, the Participants are 

required to demonstrate that the Proposed 

Amendment: (1) provides ‘for the equitable 

allocation of reasonable dues, fees, and other 

charges,’ (2) is ‘not designed to permit unfair 

discrimination between customers, issuers, brokers 

or dealers’ and (3) does not ‘impose any burden on 

competition not necessary or appropriate in 

furtherance of the purposes’ of the Exchange Act.’’ 

Id. at 1, n.4 (citing to Sections 6 and 15A of the 

Exchange Act and Rule 700(b)(3)(iii) of the 

Commission’s Rules of Practice. 15 U.S.C. 78s; 15 

U.S.C. 15o–3; 17 CFR 201.700(b)(3)(iii)). Approval 

of the Proposed Amendment, however, is governed 

by Rule 608 of Regulation NMS. That rule requires 

the Commission to approve a proposed amendment 

to an effective national market system plan if it 

finds that the amendment is necessary or 

appropriate in the public interest, for the protection 

of investors and the maintenance of fair and orderly 

markets, to remove impediments to, and perfect the 

mechanisms of, a national market system, or 

otherwise in furtherance of the purposes of the Act. 

17 CFR 242.608(b)(2). 

122See Citadel July Letter at 20. See also Citadel 

August Letter at 3. 

123See Citadel August Letter at 3. The commenter 

said that such an analysis is feasible and should 

account for aggregate costs to be borne by affiliated 

entities, stating that this is required in Section 

11.2(c) of the 2016 CAT NMS Plan. Id. 

124See Citadel July Letter at 2. See also infra 

notes 260–265. 

125See FINRA April 2023 Letter at 5. 

126See Letter to Vanessa Countryman, Secretary, 

Commission, from Brandon Becker, Chair, CAT 

NMS Plan Operating Committee, dated May 18, 

2023 (‘‘CAT LLC May 2023 Response Letter’’), at 9. 

127 Id. 

128 Id. 

129See FINRA May 2023 Letter at 3, n.8. 

130 Id. 

131See FINRA May 2023 Letter at 3. 

132See CAT LLC July 2023 Response Letter at 35. 

133 Id. 

134See Citadel July Letter at 27. 

135See CAT LLC July 2023 Response Letter at 14. 

136 Id. 

137 Id. 

138See Citadel July Letter at 17; Virtu Letter at 2. 

139CAT LLC July 2023 Response Letter at 10. 

140 Id. at 11. 

141Citadel July Letter at 32. 

142See Virtu Letter at 4. 

these economic effects on clients and 

other end investors.121

One commenter stated that many of 

the largest Industry Members would be 

allocated CAT fees based on proprietary 

trading activity, so they would not be 

able to pass through their fees to 

investors.122 The commenter urged an 

analysis of proprietary executed volume 

compared to customer executed volume 

in order to evaluate how CAT costs will 

be allocated among Industry Members 

and whether the allocation methodology 

is fair, equitable and not unfairly 

discriminatory.123 The commenter also 

stated that the Proposed Amendment is 

inconsistent with Section 6(b)(5) by 

imposing a new and increasing expense 

on investors, which would negatively 

impact liquidity and efficiency, and that 

the proposed allocation to Industry 

Members would disproportionately 

impact market makers (because 20 firms 

would have to pay most of the costs) 

and retail investors (due to their trading 

in sub-dollar NMS stocks that increase 

executed share volume), in violation of 

Section 6(b)(8).124

In response to the comment stating 

that the Participants had not analyzed a 

suggested Section 31-style approach to a 

funding model,125 CAT LLC stated that 

the CAT fee approach is similar to the 

Section 31 fee approach in how an 

exchange would be obligated to pay a 

transaction fee based on transactions 

occurring on that exchange, and that 

FINRA would be obligated to pay a 

transaction fee based on transactions in 

the over-the-counter market.126 CAT 

LLC stated that the approaches are also 

similar because, in both, an exchange 

would be able to determine to pass the 

fee onto its members, as would 

FINRA.127 CAT LLC stated that if the 

Section 31 approach would comply 

with the Exchange Act, then the 

proposed CAT fee approach should also 

comply with the Exchange Act and 

CEBBs and CEBSs could determine 

whether to pass such fees onto their 

clients.128

In response, FINRA stated that the 

CAT LLC May 2023 Response Letter 

misrepresented the commenter’s letter 

by incorrectly stating that the 

commenter’s letter recommended an 

approach similar to Section 31 fees.129

FINRA clarified that it was noting that 

the Commission had received comments 

suggesting a model like the Section 31 

fees, that the Participants had not 

‘‘meaningfully analyzed’’ the suggested 

alternatives in the Proposed 

Amendment, and that the Commission 

should require the Participants to 

analyze the alternatives.130

CAT LLC further responded to 

FINRA’s objections to the use of the 

TAF as precedent for CAT fees— 

specifically, FINRA’s statement that 

unlike the proposed CAT fees, the TAF 

recovers the costs of FINRA’s regulatory 

activities, while the Proposed 

Amendment is designed to align with 

the costs to build, operate and 

administer the CAT.131 CAT LLC stated 

that there is no distinction between the 

two points raised by the commenter 

because CAT only has a regulatory 

purpose; therefore, costs to build, 

operate and administer the CAT are 

inherently regulatory costs.132 CAT LLC 

also noted that FINRA distinguished the 

TAF from the proposed CAT fees by 

describing the TAF as being used in 

combination with other funding 

mechanisms to support a funding 

framework, but CAT LLC stated that 

‘‘this does not change the general 

conclusion that a transaction-based fee 

complies with the Exchange Act.’’ 133

In response to a commenter that 

stated that there is no precedent for CAT 

fees to be allocated to Industry Members 

in perpetuity, and that the Exchange Act 

would not allow CAT LLC to require 

Industry Members to fund unlimited 

costs in perpetuity,134 CAT LLC stated 

that the proposed allocation would not 

require Industry Members to fund all 

costs since it would divide CAT costs 

such that one-third would be paid each 

by the Participant, CEBB and CEBS in 

a transaction.135 Furthermore, CAT LLC 

stated that fees would not be paid in 

perpetuity, as the Fee Rate set by the 

Operating Committee at the beginning of 

each year would be based on reasonably 

budgeted CAT costs and projected total 

executed equivalent share volume for 

the year and would be adjusted midyear, and that to implement the Fee 

Rates, the Participants would need to 

file fee filings pursuant to Rule 19b–4 

with the Commission that must be 

consistent with the Exchange Act and 

allow the public the opportunity to 

comment on the fees.136 CAT LLC 

added that the Executed Share Model 

would operate similarly to other fees 

that the Commission has determined are 

consistent with the Exchange Act, such 

as Participants’ sales value fees related 

to Section 31, the TAF and the options 

regulatory fee, and that the comment 

did not recognize that Industry 

Members can choose to pass-through 

CAT fees to their customers like they do 

the Section 31-related sales value 

fees.137

In response to comments that objected 

to the proposed allocation to Industry 

Members because Industry Members 

would not benefit from the CAT,138 CAT 

LLC stated allocating costs based on 

who benefits from the CAT is ‘‘not 

appropriate or practical.’’ 139 CAT LLC 

stated that the CAT is intended to 

benefit all market participants, 

explaining how it would benefit 

Industry Members, and stated that it 

would be ‘‘impractical to determine a 

model that allocates a measurable 

amount of benefit that each market 

participant receives from the CAT.’’ 140

In response to a commenter that 

suggested that Industry Members should 

not be allocated any ‘‘costs for matters 

that primarily benefit the CAT 

Operating Committee or the SROs,’’ 141

and a commenter that stated that the 

industry does not benefit from the 

CAT,142 CAT LLC disagreed that 

Industry Members do not benefit from 

the CAT because CAT is critical for the 


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143See CAT LLC July 2023 Response Letter at 13. 

144 Id. at 12. See also id. at 13. 

145See Citadel July Letter at 16, 22; FIA Letter at 

2. 

146See CAT LLC July 2023 Response Letter at 8. 

147 Id. 

148See Citadel July Letter at 3, 22, 30; FIA Letter 

at 2–3. 

149See CAT LLC July 2023 Response Letter at 9. 

150See Citadel July Letter at 17; Virtu Letter at 2. 

CAT LLC also objected to one commenter’s 

description of the CAT as an exchange ‘‘revenue 

generator,’’ stating that CAT LLC is a business 

league under Section 501(c)(6) of the Internal 

Revenue Code, and that enforcement activity 

obtains restitution for investors and deters future 

misconduct rather than generating revenue. See 

CAT LLC July 2023 Response Letter at 13–14 

(responding to Citadel July Letter at 17). 

151CAT LLC July 2023 Response Letter at 13. 

152See SIFMA May 2023 Letter at 3; 6–7. See also 

SIFMA January 2023 Letter at 2, 3–4. 

153See CAT LLC May 2023 Response Letter at 6; 

CAT LLC July 2023 Response Letter at 6. 154See CAT LLC May 2023 Response Letter at 7; 

CAT LLC July 2023 Response Letter at 7. 155See CAT LLC July 2023 Response Letter at 7. 156 Id. 157 Id. 158 Id. at 6. 159See SIFMA May 2023 Letter at 7. 160See CAT LLC July 2023 Response Letter at 6. 161 Id. 

162 Id. 

163See SIFMA May 2023 Letter at 7. See also 

SIFMA January 2023 Letter at 4. 

164See CAT LLC May 2023 Response Letter at 7; 

CAT LLC July 2023 Response Letter at 7. 

165See CAT LLC July 2023 Response Letter at 7– 

8. 

166See CAT LLC May 2023 Response Letter at 7; 

CAT LLC July 2023 Response Letter at 8; SIFMA 

May 2023 Letter at 7. 

167See CAT LLC May 2023 Response Letter at 7; 

CAT LLC July 2023 Response Letter at 8. 

168See CAT LLC May 2023 Response Letter at 7; 

CAT LLC July 2023 Response Letter at 8. 

169See CAT LLC July 2023 Response Letter at 8. 

170See CAT LLC May 2023 Response Letter at 7. 

171See SIFMA June 2023 Letter at 2. 

protection of investors and because CAT 

supports fair and efficient markets.143

CAT LLC also stated that it was not 

‘‘reasonable or practical to attempt to 

parse CAT costs by who ‘primarily 

benefits’ from those costs.’’ 144

In response to comments that state 

that Industry Members could bear 100% 

of CAT costs if Participants decide to 

pass-through their costs to them,145 CAT 

LLC stated that Industry Members can 

pass through their own CAT fees to their 

customers, like broker-dealers do for 

transaction-based fees.146 CAT LLC 

stated that this may result in Industry 

Members not having any funding 

burden if they decide to entirely passthrough their allocation to investors.147

In response to commenters that 

requested that Participant be prohibited 

from passing-on their CAT costs to their 

members,148 CAT LLC stated that 

Participants are permitted by the 

Exchange Act to charge their members 

fees to fund the Participants’ share of 

CAT fees, as long as they submit fee 

filings that demonstrate that any 

proposed fee is consistent with the 

Exchange Act.149

In response to comments objecting to 

the proposed allocation to Industry 

Members for not taking into account 

regulatory fees currently paid by 

Industry Members,150 CAT LLC stated 

that the Proposed Amendment is 

intended to assess fees ‘‘directly 

associated with the costs of establishing 

and maintaining the CAT, and not 

unrelated SRO services.’’ 151

In response to comments on whether 

Participants’ models are equally to 

blame for the complexity of the 

markets,152 CAT LLC stated that its 

analysis of the complexity of the 

industry’s business models is based on 

the effects of those models on the costs 

of the CAT, which it stated are more 

profound than those of Participants, not 

on complexity of the market in 

general.153 CAT LLC explained that the 

complexity of the Industry Members’ 

business models results in significant 

data processing and storage costs, which 

Participants do not contribute to as they 

do not originate market activity or 

orders.154 CAT LLC explained that (1) 

the complexity and diversity of Industry 

Members’ business models and order 

handling practices require processing 

and storage of hundreds of reporting 

scenarios for Industry Members, 

resulting in significant data processing 

and storage costs; 155 (2) Industry 

Members have more late data and 

corrections than Participants, resulting 

in significant linker costs; 156 and (3) 

Industry Members have customers, 

which results in CAT costs related to 

customer account information (FDID, 

CCID and CAIS) and customer 

investment strategies.157 CAT LLC also 

stated that Participants would pay the 

same amount as the CEBBs and CEBSs 

in each transaction.158 In response to 

one commenter that stated that Industry 

Members implemented complex routing 

strategies to optimize exchange fees and 

rebates because exchange business 

decisions resulted in these and other 

exchange fee structures,159 CAT LLC 

stated that the commenter did not 

demonstrate a causal connection 

between exchange fee structures and 

CAT costs.160 CAT LLC stated that it 

was not involved in these Industry 

Member business decisions and a 

substantial amount of CAT costs result 

from such business decisions.161 CAT 

LLC also stated that Participant activity 

does not contribute as much to CAT 

costs as complex Industry Member 

activity.162

CAT LLC also disagreed with one 

commenter’s dismissal of CAT LLC’s 

consideration of Industry Members’ 

relative ability to pay,163 stating that the 

Exchange Act specifically requires that 

the fees be fair and reasonable, which 

necessitates consideration of the relative 

ability to pay.164 CAT LLC stated that 

fairness issues require the Participants 

to consider the greater financial 

resources of Industry Members in the 

creation of a funding model. CAT LLC 

also stated that the commenter’s 

position runs contrary to its comments 

that an Industry Member’s ability to pay 

is an important consideration in the 

context of CAT fees.165

Additionally, CAT LLC objected to 

the commenter’s statement that the 

proposed allocation is ‘‘inconsistent 

with the historical CAT decision to 

allocate costs to the parties responsible 

for generating them.’’ 166 CAT LLC 

stated that, while the CAT NMS Plan 

does not require CAT costs to be 

allocated to parties responsible for 

generating such costs, the proposed 

allocation addresses cost burden on the 

CAT by (i) taking into account the 

impact of Industry Member activity on 

CAT costs, and (ii) using trading 

activity, which CAT LLC believes is a 

‘‘reasonable proxy for cost burden on 

the CAT,’’ 167 as the metric for cost 

allocation.168 CAT LLC also stated that 

there are other examples of trading 

activity-based fees so the funding model 

would not be novel or unique.169

Additionally, CAT LLC responded to 

the commenter’s suggested alternative 

proposal that would equally allocate 

CAT costs to Participant exchanges and 

Industry Members, stating that the 

commenter did not explain why the 

alternative would satisfy the Exchange 

Act standards, and noting that CAT LLC 

had previously considered such an 

allocation but believed that it would not 

result in a fair and equitable allocation 

due to the greater number of Industry 

Members than Participants, the greater 

financial resources of Industry 

Members, and the failure of the 

suggested allocation to take into account 

how the complexity of Industry Member 

business models contributes 

substantially to CAT costs.170

In response, the commenter stated 

that the CAT LLC Response Letter did 

not meaningfully address the concerns 

it raised about the allocation of CAT 

costs between Participants and Industry 

Members.171 CAT LLC further 

responded, stating that it has responded 

to the commenter’s comments several 

times and that just because CAT LLC 

did not adopt the commenter’s 

viewpoints does not mean that CAT LLC 


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172See CAT LLC July 2023 Response Letter at 27. 

173See Citadel July Letter at 31. 

174See CAT LLC July 2023 Response Letter at 10. 

175 Id. 

176See Citadel July Letter at 30. 

177See CAT LLC July 2023 Response Letter at 10. 

178 Id. at 11–12. 

179See Citadel August Letter at 5. 

180 Id. (citing the minimum and maximum fees 

and market making discounts proposed in a funding 

model proposal from the CAT Operating Committee 

that was filed in 2021. See Securities Exchange Act 

Release No. 91555 (Apr. 14, 2021), 86 FR 21050 

(Apr. 21, 2021)). 

181 Id. 

182See 17 CFR 242.608(b)(2). 

183The CAT NMS Plan requires Execution 

Venues and Industry Members to fund the CAT. 

The definition of ‘‘Execution Venue’’ includes 

Participants. See supra note 15. 184See CAT NMS Plan, supra note 2, at Section 

11.1(b), 11.3(a) and (b). Section 11.1(b) of the CAT 

NMS Plan authorizes the Operating Committee to 

establish fees for Execution Venues (which include 

Participants) and Industry Members to fund the 

CAT and Sections 11.3(a) and (b) of the CAT NMS 

Plan set forth how these fees would be calculated. 

See also Rule 613(a)(1)(vii)(D) discussing how the 

CAT NMS Plan shall discuss the proposed 

allocation of estimated costs among the plan 

sponsors, and between the plan sponsors and 

members of the plan sponsors. 17 CFR 

242.613(a)(1)(vii)(D). 

185See Citadel July Letter at 15. 186See infra notes 189–201 and accompanying 

text. 187See FINRA June 2022 Letter at 4; FINRA April 

2023 Letter at 8. 188See 17 CFR 242.613(e)(4)(i)(A); CAT NMS Plan 

Sections 6.5(c) and 6.5(g) and Appendix D, Section 

8.1. 189See SIFMA May 2023 Letter at 2; Citadel July 

Letter at 16, 17, 21, 22; Citadel August Letter at 2. 

190See SIFMA AMG Letter at 2; FINRA April 

2023 Letter at 6–7. 

191Sections 6(b)(1) and 15A(b)(2) of the Exchange 

Act require that a national securities exchange or 

national securities association have the capacity to 

be able to carry out the purposes of the Exchange 

Act, the rules and regulations thereunder, and the 

rules of the exchange or association. 15 U.S.C. 

78f(b)(1); 15 U.S.C. 78o–3(b)(2). 

192 15 U.S.C. 78s(b). 

193 15 U.S.C. 78s(b)(3)(A); 17 CFR 240.19b–4(f)(2). 

Pursuant to Exchange Act Rule 19b–4, a proposed 

rule change may take effect upon filing with the 

Commission pursuant to Section 19(b)(3)(A) of the 

Exchange Act if properly designated by the selfdid not consider or respond to the 

commenter’s comments.172

In response to a commenter that 

recommended allocating no more than 

50% of CAT costs to Industry Members, 

including the FINRA allocation,173 CAT 

LLC stated that the commenter did not 

offer a reasoned basis why such an 

allocation would be consistent with the 

Exchange Act.174 CAT LLC also stated 

that such an allocation would raise 

fairness concerns because, as compared 

to Participants, Industry Members have 

greater financial resources, and their 

complex business models ‘‘contribute 

substantially to the costs of the 

CAT.’’ 175 Furthermore, in response to 

the commenter’s other suggested 

allocation methodology which the 

commenter believed would ensure that 

a small group of firms and specific 

market segments would not be subject to 

inequitable cost burdens,176 CAT LLC 

stated that the commenter did not 

explain how the suggested methodology 

would fit into a funding model or how 

such a funding model would be 

consistent with the Exchange Act.177

CAT LLC stated that it evaluated various 

other funding models over the past 

seven years and concluded that ‘‘the 

Executed Share Model provides a 

variety of advantages in comparison to 

the alternatives, and satisfies the 

requirements of the Exchange 

Act. . .’’ 178

In response, the commenter stated 

that its suggestions, which included 

minimum and maximum fee levels, 

calibrations for liquidity provision, and 

consideration of additional metrics,179

were included in prior funding model 

proposals.180 The commenter stated that 

the CAT Operating Committee should 

explain why it changed its position on 

‘‘the importance of these elements as 

part of a fair and equitable funding 

proposal that is consistent with the 

Exchange Act.’’ 181

The Executed Share Model reflects a 

reasonable approach to funding the 

building and operation of the CAT.182

The CAT NMS Plan requires both 

Participants 183 and Industry Members 

(which would include CAT Executing 

Brokers) to fund the CAT.184 The costs 

of CAT therefore must be allocated in 

some fashion between Participants and 

Industry Members, and how to do so is 

a question of judgment for which there 

may be multiple reasonable approaches. 

CAT LLC has proposed to allocate CAT 

fees equitably among the three parties 

who have primary roles related to the 

transaction: the buyer, seller, and 

market regulator. In response to one 

commenter that stated that the proposed 

allocation methodology is inconsistent 

with the Exchange Act because of an 

excessive percentage of total costs 

proposed to be allocated to Industry 

Members and an unfair method of 

allocating costs among Industry 

Members,185 the Commission believes 

that the proposed allocation is 

reasonable as discussed below.186

While a commenter said the Proposed 

Amendment did not justify why the 

TAF, options regulatory fee, and Section 

31 fees should be used as a model in the 

context of the Executed Share Model,187

CAT was created to serve regulatory 

purposes. Moreover, CAT Data can only 

be used by SROs and the Commission 

for regulatory and surveillance 

purposes.188 Therefore, the costs 

incurred by the Participants to build, 

operate and administer the CAT 

similarly are regulatory costs, which 

here the Participants are seeking to 

recover through the CAT fees. 

Commenters expressed concerns that 

the Participants may impose fees on 

their members to recoup costs relating 

to CAT, making Industry Members 

responsible for CAT funding costs 

beyond those to which they will be 

directly assessed pursuant to the 

Executed Share Model,189 that CAT 

costs will be passed-through to investors 

and that this aspect of the Proposed 

Amendment lacks information needed 

to demonstrate that it meets the 

approval standard and to allow the 

Commission and other interested parties 

to consider the resulting economic 

effects.190 In response to the comments, 

the Commission acknowledges the 

concerns but also emphasizes that, as 

discussed above, the CAT provides 

important benefits in facilitating 

effective market surveillance and the 

Exchange Act expressly contemplates 

the ability of the Participants to recoup 

their costs to fulfill their statutory 

obligations under the Exchange Act.191

To that end, the CAT NMS Plan 

expressly contemplates the allocation of 

the costs associated with operating the 

CAT among the Participants and the 

Industry Members. The use of the 

Executed Share Model is a reasonable 

method, among a number of potential 

approaches to do so. 

The Commission recognizes that these 

operational costs may be passed on in 

other ways, including by both the 

Participants and Industry Members, 

who each may elect to pass on such 

operational costs as fees to customers 

indirectly through their charges for 

services to customers. That would be 

true regardless of how the Proposed 

Amendment chose to set the initial 

allocation. Even if the Participants 

decide to pass-through the costs of CAT 

to Industry Members, however, in our 

view, the rule filing process under 

Section 19(b) and Rule 19b-4 will still 

incentivize the Participants to control 

costs. Any effort to pass-through costs 

will be subject to that process and, if the 

Participants fail to control costs, their 

ability to demonstrate that a proposed 

fee is reasonable and consistent with the 

Exchange Act may be compromised. 

After the Participants file their proposed 

rule changes relating to fees with the 

Commission, those proposed rule 

changes are published by the 

Commission and there is an opportunity 

for public comment.192 Although the 

proposed rule changes could likely take 

effect upon filing,193 the Commission 


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regulatory organization as: (1) constituting a stated 

policy, practice, or interpretation with respect to 

the meaning, administration, or enforcement of an 

existing rule; (2) establishing or changing a due, fee, 

or other charge applicable only to a member; (3) 

concerned solely with the administration of the 

self-regulatory organization. 

194 15 U.S.C. 78s(b)(3)(C). 

195 15 U.S.C. 78s(b)(2)(B). 

196See Section 6(b)(4); Section 15A(b)(5); Section 

6(b)(5); Section 15A(b)(6). 15 U.S.C. 78f(b)(4); 15 

U.S.C. 78f(b)(6); 15 U.S.C. 78o–3(b)(5); 15 U.S.C. 

78o–3(b)(6). See also e.g., Schedule A to the ByLaws of FINRA, Section 1(a) (stating ‘‘FINRA shall, 

in accordance with this section, collect member 

regulatory fees that are designed to recover the costs 

to FINRA of the supervision and regulation of 

members, including performing examinations, 

financial monitoring, and policy, rulemaking, 

interpretive, and enforcement activities’’). 

197See Notice, supra note 7, 88 FR at 17108; see 

also CAT LLC July Response Letter at 8–9; cf. 

SIFMA May 2023 Letter at 8; Citadel July Letter at 

20. 

198Any efforts to recoup CAT costs will be 

subject to statutory and regulatory oversight as 

appropriate. Under the federal securities laws and 

FINRA rules, prices for securities and broker-dealer 

compensation are required to be fair and 

reasonable, taking into consideration all relevant 

circumstances. See, e.g., Exchange Act Sections 

10(b) and 15(c); FINRA Rules 2121 (Fair Prices and 

Commissions), 2122 (Charges for Services 

Performed), and 2341 (Investment Company 

Securities). See also FINRA Rule 3221 (Non-Cash 

Compensation). Broker-dealers are also required to 

disclose the fees they charge related to a transaction 

pursuant to Exchange Act Rule 10b–10. See 17 CFR 

240.10b–10. 

199See SIFMA AMG Letter at 2; FINRA April 

2023 Letter at 6–7. 200See Citadel July Letter at 20; Citadel August 

Letter at 3. 201See SIFMA June 2023 Letter at 3, 4; Citadel 

July Letter at 2; FIA Letter at 2–5. 

202See supra notes 192–196 and accompanying 

text. 203See proposed Section 11.3(a)(i)(A)(I) and 

proposed Section 11.3(a)(i)(A)(II). 204See proposed Section 11.3(a)(i)(C). 

205CAT NMS Plan, supra note 2, at Section 

11.1(c). 

can temporarily suspend immediately 

effective rule changes if such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Exchange Act.194 If the 

Commission takes such action, the 

Commission will institute proceedings 

under Section 19(b)(2)(B) to determine 

whether the proposed rule changes 

should be approved or disapproved.195

Those fees, like any fees the Participants 

collect from their members to fund their 

SRO responsibilities in market and 

member regulation, must be consistent 

with applicable statutory standards 

under the Exchange Act, including 

being reasonable, equitable and not 

unfairly discriminatory.196

Additionally, as stated by CAT LLC, 

Industry Members may be able to offset 

fees that FINRA assesses them by 

passing their CAT fees through to their 

customers,197 and as discussed further 

below, the Commission believes that the 

additional costs borne by investors are 

likely small relative to current 

transaction costs.198 The Commission 

recognizes that not all Industry 

Members currently pass through fees 

and cannot determine in advance the 

extent to which Industry Members can 

or will pass-through their CAT fees to 

investors or would determine to do so 

in the future. But we believe that many 

are able to and that at least some will 

do so. For all of these reasons, contrary 

to the view of some commenters,199 the 

Commission does not believe that the 

inability to determine the amount of the 

CAT costs that will be passed along to 

investors precludes a finding that the 

allocation model set forth in the 

Proposed Amendment meets the 

approval standard. 

In response to the commenter stating 

that proprietary trading firms cannot 

pass-through fees to investors and 

suggesting that an analysis of 

proprietary executed volume compared 

to customer executed volume is 

necessary to determine if the allocation 

is fair, equitable, and unfairly 

discriminatory,200 the Commission 

believes it is reasonable to charge 

executing brokers regardless of whether 

they are trading for their own account 

or for a customer’s account. The 

Commission acknowledges that there is 

not a customer per se for proprietary 

trades and therefore, proprietary trading 

firms would not be able to pass-through 

their CAT fees to customers. However, 

regardless of whether a firm trades for 

its own account or for a customer 

account, in both instances, the firm 

engages in trading activity to earn a 

profit. In the Commission’s view, it is 

reasonable to allow a firm to incur CAT 

fees for its profit-making business 

activities, such as proprietary activity. 

The Commission recognizes that 

Industry Members may pass-through 

CAT fees for customer executed volume 

but in the case of proprietary trades 

where a firm is trading for its own 

account, there is no customer to which 

the firm can pass-through fees, as the 

firm itself is the ultimate investor, and 

thus it is reasonable for the firm to be 

responsible for payment of CAT fees for 

those trades. Further, the Commission 

believes it is reasonable to allow a firm 

to incur CAT fees for its profit-making 

activity, which in this case is 

proprietary activity. CAT is a regulatory 

tool that will be used by the Participants 

and the Commission to oversee the 

activities for which Industry Members 

earn profits and therefore it is 

reasonable for fees to be charged for that 

profit-making activity, even if those fees 

cannot be passed on to customers. 

While comments raised concerns that 

the industry would be allocated most of 

the CAT costs in perpetuity without a 

mechanism to limit the budget,201 there 

is a statutory process for notice and 

comment and Commission review of 

proposed rule changes relating to fees, 

under Section 19(b) and Rule 19b–4.202

In addition, the Proposed Amendment 

requires that the Fee Rate calculated by 

the Operating Committee twice per year 

be based on ‘‘reasonably budgeted CAT 

costs’’ 203 and that such budgeted CAT 

costs be composed 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.’’ 204 The 

Operating Committee must demonstrate 

that their proposed budget and 

associated fees are reasonable, and the 

Participants must provide support for 

such reasonableness in their associated 

fee filings. If a Participant cannot 

demonstrate that their budgeted CAT 

costs are reasonable in a particular 

filing, following notice and public 

comment, then that would provide the 

Commission with grounds to suspend 

the filing and ultimately disapprove it, 

which should impose discipline or 

constraints on the fee setting process. 

Further, the concerns expressed that 

the proposed allocation did not account 

for the costs already incurred by 

Industry Members to comply with the 

CAT or other fees paid by Industry 

Members to exchanges for other 

regulatory matters do not render that 

allocation unreasonable. Both 

Participants and Industry Members have 

incurred costs in adapting their 

operations to report to CAT as is 

required to achieve the benefits 

anticipated from the CAT. But the 

purpose of the funding model is to 

provide a framework for the recovery of 

a different set of costs—those incurred 

by the Participants’ in developing and 

maintaining the CAT system. Section 

11.1(c) of the CAT NMS Plan explicitly 

permits the Operating Committee to 

recover those costs, allowing it to ‘‘take 

into account fees, costs and expenses 

. . . incurred by the Participants on 

behalf of the Company . . . and such 

fees, costs and expenses shall be fairly 

and reasonably shared among the 

Participants and Industry Members.’’ 205

The decision to exclude the costs of 

compliance from this funding model is 

thus a reasonable one. 

Further, the Commission does not 

base its finding with respect to the 

proposed allocation of costs between 

Participant and Industry Members on 

their respective responsibility for any 


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206See Notice, supra note 7, 88 FR at 17087. 207 Id. 208 In the Proposed Amendment, CAT LLC stated 

that it considered but rejected a number of 

alternative approaches to the CAT funding model; 

specifically, an approach based on a CAT Reporter’s 

cost burden on the CAT, a 50%–50% allocation of 

costs between Industry Members and Participant 

exchanges, a revenue-based funding model in 

which CAT Reporters would pay fees based on their 

revenue, a message traffic model in which both 

Industry Members and Participants would be 

assessed fees based on message traffic in the CAT, 

a sales value model in which fees would be 

calculated based on transaction sales models, an 

alternative allocation in which fees would only be 

allocated to the CEBS, and the 2018 and 2021 Fee 

Proposals, a model in which CAT LLC would 

allocate all costs among the Participants and permit 

each Participant to charge its own members as it 

deems appropriate, and a cost allocation based on 

a strict pro-rata distribution regardless of the type 

or size of CAT Reporters. Id. at 17105–06, 17117– 

19. See also CAT LLC May 2023 Response Letter 

at 8, where CAT LLC responded that SIFMA did not 

offer a reasoned basis for why a 50–50 allocation 

would satisfy the standards set forth in the 

Exchange Act. While alternative models have been 

suggested and considered, the proposed Executed 

Share Model meets the approval standard in Rule 

608(b)(2). 

209See FINRA April 2023 Letter at 5; SIFMA 

January 2023 Letter at 4. See also SIFMA May 2023 

Letter at 8; SIFMA June 2022 Letter at 5–6; SIFMA 

October 2022 Letter at 4; Citadel July Letter at 3, 

30, 31, 32. 

210See Citadel August Letter at 5. 

211 17 CFR 242.608(b)(2). 

212The CAT NMS Plan defines an ‘‘Eligible 

Security’’ as including all NMS Securities and all 

OTC Equity Securities. See CAT NMS Plan, supra 

note 2, at Section 1.1. ‘‘NMS Security’’ is defined 

as ‘‘any security or class of securities for which 

transaction reports are collected, processed, and 

made available pursuant to an effective transaction 

reporting plan, or an effective national market 

system plan for reporting transactions in Listed 

Options.’’ Id. ‘‘OTC Equity Security’’ is defined by 

the CAT NMS Plan as ‘‘any equity security, other 

than an NMS Security, subject to prompt last sale 

reporting rules of a registered national securities 

association and reported to one of such 

association’s equity trade reporting facilities.’’ Id. 

213See Notice, supra note 7, 88 FR at 17086. 

214 Id. at 17093. 

215 Id. 

216 Id. 

217Proposed Section 11.3(a)(i)(B)(I). 

218See Notice, supra note 7, 88 FR at 17093. 

219 Id. See also proposed Section 11.3(a)(i)(B)(II). 

220See Notice, supra note 7, 88 FR at 17093. 

221 Id. 

222 In an example provided by CAT LLC, based 

on data from 2021, (1) the average price per 

executed share of OTC Equity Securities was $0.072 

and the average price per executed share for NMS 

Stocks was $49.51; and (2) the average trade size for 

OTC Equity Securities was 63,474 and the average 

trade size for NMS Stocks was 166 shares. Trades 

in OTC Equity Securities accounted for 77% of the 

number of all equity shares traded, but only 0.51% 

of the notional value of all equity shares traded. Id. 

at 17093, n.36. 

223 Id. at 17093. 

complexity in the markets. Regardless of 

the origin of that complexity, its 

existence contributes to the costs of 

CAT and the purpose of the funding 

model is to account for those current 

and future costs, not assess 

responsibility for the market structure. 

The Participants’ decision to divide the 

costs evenly among the three parties 

who have primary roles related to the 

transaction is reasonable. 

As explained below, the Commission 

agrees with CAT LLC’s statements that, 

‘‘[t]he Executed Share Model . . . 

reflects a reasonable effort to allocate 

costs based on the extent to which 

different CAT Reporters participate in 

and benefit from the equities and 

options markets,’’ 206 and is 

‘‘transparent, would be relatively easy to 

calculate and administer, and is 

designed not to have an impact on 

market activity because it is neutral as 

to the location and manner of 

execution.’’ 207 The Participants 

considered, and have previously 

proposed, alternative allocations and 

funding models.208 And the 

Commission acknowledges the 

alternative funding models and 

allocations suggested by commenters.209

Each of those alternatives, as well as 

those suggested by commenters, has 

relative strengths and weaknesses. 

Similarly, the alternatives suggested by 

a commenter,210 including maximum 

and minimum fees, appropriate 

calibrations for liquidity provision and 

consideration of additional provisions 

(e.g., broker-dealer capital), have 

strengths and weaknesses. For example, 

imposing maximum and minimum fees 

would transfer costs from the largest 

members to the smallest members, 

distorting the economic incentives of 

the Executed Share Model. A similar 

distortion could arise to the extent 

market maker volume is discounted or 

otherwise calibrated or to the extent 

considering other metrics that are not 

necessarily correlated with the cost 

drivers of the CAT. Given the potential 

distortions that could occur with these 

alternatives, the Commission does not 

believe that the existence of those 

alternatives, or the remaining concerns 

identified by commenters individually 

or collectively, call into question the 

Proposed Amendment’s satisfaction of 

the approval standard in Rule 

608(b)(2),211 or otherwise warrant a 

departure from the policy choices made 

by the Participants. 

3. Executed Equivalent Shares 

Under the Executed Share Model, a 

CAT fee would be charged with regard 

to each transaction in Eligible 

Securities 212 as reported in CAT Data 

based on executed equivalent shares.213

A CAT Fee would be imposed with 

regard to transactions in Eligible 

Securities in the CAT Data regardless of 

whether the trade is executed on an 

exchange or otherwise than on an 

exchange.214

Proposed Section 11.3(a)(i)(B) of the 

CAT NMS Plan describes how executed 

equivalent shares would be counted for 

purposes of calculating CAT fees. 

Specifically, the Executed Share Model 

uses the concept of executed equivalent 

shares as the transactions subject to a 

CAT Fee involve NMS Stocks, Listed 

Options and OTC Equity Securities, 

each of which have different trading 

characteristics.215 Proposed Section 

11.3(a)(i)(B) would require the shares to 

be reasonably counted for each type of 

Eligible Securities in the following 

manner: 

NMS Stocks. Under the Executed 

Share Model, each executed share for a 

transaction in NMS Stocks would be 

counted as one executed equivalent 

share.216 Accordingly, proposed Section 

11.3(a)(i)(B)(I) of the CAT NMS Plan 

would state that ‘‘[f]or purposes of 

calculating CAT Fees, executed 

equivalent shares in a transaction in 

Eligible Securities will be reasonably 

counted as follows: (I) each executed 

share for a transaction in NMS Stocks 

will be counted as one executed 

equivalent share.’’ 217

Listed Options. Recognizing that 

Listed Options trade in contracts rather 

than shares, each executed contract for 

a transaction in Listed Options will be 

counted using the contract multiplier 

applicable to the specific Listed Option 

in the relevant transaction.218 Typically, 

a Listed Option contract represents 100 

shares; however, it may also represent 

another designated number of shares.219

OTC Equity Securities. Similarly, in 

recognition of the different trading 

characteristics of OTC Equity Securities 

as compared to NMS Stocks, the 

Executed Share Model would discount 

the share volume of OTC Equity 

Securities when calculating CAT 

Fees.220 CAT LLC explained that many 

OTC Equity Securities are priced at less 

than one dollar—and a significant 

number are priced at less than one 

penny—per share and low-priced shares 

tend to trade in larger quantities.221

Accordingly, a disproportionately large 

number of shares are involved in 

transactions involving OTC Equity 

Securities versus NMS Stocks.222

Because the Executed Share Model 

would calculate CAT Fees based on 

executed share volume, CAT Reporters 

trading OTC Equity Securities would 

likely be subject to higher fees than their 

market activity may warrant.223 To 

address this potential concern, CAT LLC 

proposed that the Executed Share Model 

would count each executed share for a 


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224See proposed Section 11.3(a)(i)(B)(III). 225See Notice, supra note 7, 88 FR at 17093. 226 Id. at 17093, n.36. 227 Id. at 17093. 228 Id. 229 Id. 230See Notice, supra note 7, 88 FR at 17103. 231 Id. at 17105; see also id. at 17103. 

232 Id. at 17105. 

233 Id. 

234 Id. 

235See Notice, supra note 7, 88 FR at 17105. 

236See FINRA June 2022 Letter at 3, 4; Citadel 

July Letter at 10. 

237See FINRA June 2022 Letter at 3. 

238 Id. 

239 Id. at 4. 

240See Citadel July Letter at 10. 

241 Id. at 19. 

242 Id. at 18, 19. See also Citadel August Letter at 

4. 

243See Citadel August Letter at 4. 

244 Id. 

245Citadel July Letter at 19. 

246 Id. See also Citadel August Letter at 2–3. 

247FINRA May 2023 Letter at 2 (quoting Notice, 

supra note 7, 88 FR at 17103.) 

248FINRA May 2023 Letter at 2. 

transaction in OTC Equity Securities as 

0.01 executed equivalent shares.224

a. Executed Equivalent Share Volume 

CAT LLC had represented that a 

disproportionately large number of 

shares are involved in transactions 

involving OTC Equity Securities versus 

NMS Stocks,225 that trades in OTC 

Equity Securities accounted for 77% of 

the number of all equity shares traded, 

but only 0.51% of the notional value of 

all equity shares traded,226 and that 

under the Executed Share Model, CAT 

Reporters trading OTC Equity Securities 

would likely be subject to higher fees 

than their market activity may 

warrant.227 CAT LLC also explained the 

analysis it undertook to determine to 

count each executed share for a 

transaction in OTC Equity Securities as 

0.01 executed equivalent shares, stating 

the discount was the result of an 

analysis of several different metrics 

comparing the markets for OTC Equity 

Securities and NMS Stocks. CAT LLC 

stated that ‘‘(1) the ratio of total notional 

dollar value traded for OTC Equity 

Securities to OTC Equity Securities and 

NMS Stocks was 0.051%; (2) the ratio of 

total trades in OTC Equity Securities to 

total trades in OTC Equity Securities 

and NMS Stocks was 0.90%; and (3) the 

ratio of average share price per trade of 

OTC Equity Securities to average share 

price per trade for OTC Equity 

Securities and NMS Stocks was 

0.065%.’’ 228 For ease of application and 

because the calculations involve 

averages, CAT LLC decided to round the 

metrics to 1%.229

In support of the use of executed 

equivalent shares to allocate costs under 

the Executed Share Model, CAT LLC 

explained that ‘‘trading activity 

provides a reasonable proxy for cost 

burden on the CAT, and therefore is an 

appropriate metric for allocating CAT 

costs among CAT Reporters.’’ 230 CAT 

LLC stated that it is not feasible to 

determine the specific cost burden of 

each CAT Reporter on the CAT, 

explaining that ‘‘[t]he computation of a 

specific CAT Reporter’s burden on the 

CAT is complicated by the many interrelated factors that contribute to CAT 

costs, including message traffic, data 

processing, storage, the complexity of 

reporting requirements, reporting 

timelines, infrastructure, connectivity 

and more.’’ 231 CAT LLC added that 

increased trading activity correlates 

with an increased cost burden on the 

CAT and Industry Members are 

generally engaged in effecting 

transactions in the market, so executed 

share volume would be an appropriate 

metric for the allocation of CAT 

costs.232 CAT LLC stated that this 

conclusion is consistent with the 

Commission’s prior recognition of the 

use of transaction volume to set 

regulatory fees.233 Additionally, CAT 

LLC stated that technology costs 

dominate all CAT costs, with compute 

costs comprising more than half of all 

technology costs, and ‘‘[w]hile [compute 

costs] are related in part to message 

traffic, they are driven by the stringent 

performance timelines, data complexity 

and operational requirements in the 

CAT NMS Plan.’’ 234 This was one of the 

reasons CAT LLC decided to change 

from using message traffic to calculate 

CAT fees using executed equivalent 

share volume.235

Commenters questioned the support 

for the use of executed share volume 

instead of message traffic, which was 

previously proposed in prior funding 

models.236 FINRA stated that the 

Proposed Amendment does not explain 

why the use of executed share volume 

as the basis of the cost allocation 

methodology, instead of message traffic, 

is equitable.237 FINRA explained that in 

prior models, message traffic was the 

key proxy for cost generation used to 

align CAT fees with CAT costs, but the 

Executed Share Model would base its 

cost allocation methodology entirely on 

executed share volume.238 FINRA stated 

that the Participants’ argument that 

executed share volume is related to cost 

generation is not enough to demonstrate 

that its use is reasonable and 

equitable.239

Another commenter stated that the 

Operating Committee cannot explain 

why the proposed allocation to Industry 

Members is equitable, noting that it 

previously stated that charging Industry 

Members based on message traffic was 

the most equitable means of establishing 

fees.240 The commenter stated that 

allocating costs among Industry 

Members based on share volume is 

inconsistent with the Exchange Act.241

The commenter stated that there is no 

evidence to support the Operating 

Committee’s assertion that trading 

activity is a reasonable proxy for cost 

burden on the CAT, explaining that the 

Operating Committee has stated before 

that CAT Data processing requirements 

and message traffic are significant 

drivers of CAT costs. The same 

commenter stated that, according to one 

Participant, options activity creates a 

greater cost burden than equities trading 

volume and that the Proposed 

Amendment does not accurately 

describe the sources of CAT’s cost 

burdens.242 The commenter stated that 

the CAT Operating Committee must 

demonstrate how the proposed 

allocation would not unfairly 

discriminate against equities market 

participants and compare equities and 

options activity with respect to (i) their 

cost burden on the CAT and (ii) the 

allocation of CAT costs to Industry 

Members.243 The commenter stated that 

if the equities markets are subsidizing 

options activity, this could have broad 

impacts on equity market liquidity, 

competition and efficiency that must be 

assessed under the Exchange Act.244

Further, the commenter stated that 

allocating costs based on volume would 

result in costs being mostly allocated to 

‘‘an extremely small group of brokerdealers,’’ which would unduly burden 

competition.245 The commenter stated 

that the Proposed Amendment also 

lacks a discussion of the impact of this 

allocation on market competition, 

efficiency and liquidity, but that the 

Operating Committee recognized in the 

Proposed Amendment that prior 

proposals, where message traffic was a 

metric used for fee allocation, could 

impose an outsized financial impact on 

certain Industry Members.246

Additionally, FINRA objected to the 

statement in the Proposed Amendment 

that ‘‘trading activity provides a 

reasonable proxy for cost burden on the 

CAT, and therefore is an appropriate 

metric for allocating CAT costs among 

CAT Reporters.’’ 247 The commenter 

stated that this statement is inconsistent 

with information that demonstrates that 

volume from FINRA’s trade reporting 

facilities (‘‘TRFs’’) contributes ‘‘a very 

small percentage of annual CAT 

compute and storage costs.’’ 248 FINRA 

stated, ‘‘. . . despite the minimal data 

compute and storage costs for 


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249 Id. See also FINRA April 2023 Letter at 8. 

250FINRA May 2023 Letter at 4. 

251 Id. See also FINRA April 2023 Letter at 7–9; 

Section 11.2(b) of the CAT NMS Plan. The Proposed 

Amendment would amend Section 11.2(b). See 

proposed Section 11.2(b); see also infra Section 

III.A.8 (Additional Changes from Original Funding 

Model). 

252FINRA June 2022 Letter at 4. 

253See FINRA May 2023 Letter at 2. 

254See CAT LLC July 2023 Response Letter at 34. 

255 Id. 

256 Id. 

257CAT LLC May 2023 Response Letter at 7. 

258 Id. 

259 Id. 

260See Citadel July Letter at 20. 

261See Citadel August Letter at 4–5. 

262 Id. at 5. 

263See Citadel July Letter at 20. 

264 Id. See also Citadel August Letter at 4–5. 

265See Citadel July Letter at 20. See also Citadel 

August Letter at 5. 

266See proposed Section 11.2(b). 

267See Notice, supra note 7, 88 FR at 17099. 

268 Id. 

269See FINRA June 2022 Letter at 4; see also 

FINRA April 2023 Letter at 7. 

270FINRA June 2022 Letter at 4. The commenter 

states that the Executed Share Model instead places 

the greatest emphasis on the funding principle 

relating to the ‘‘ease of billing and other 

administrative functions,’’ favoring that principle 

over cost alignment. Id. at 5. 

271 Id.; FINRA April 2023 Letter at 8–9. 

272See Section 11.2(b) of the CAT NMS Plan. 

transactions reported to the TRF, FINRA 

would be assessed an estimated 34% of 

the total CAT costs to be borne amongst 

the 25 Participants, and more than all 

options exchanges combined,’’ therefore 

it cannot support the Participants’ 

assertion that trading activity is a 

reasonable proxy for cost burden.249

FINRA stated that the Proposed 

Amendment ‘‘fails to provide for 

reasonable fees that are equitably 

allocated and not unfairly 

discriminatory, does not reflect a 

reasonable approach to allocating costs 

amongst the Participants, nor does it 

transparently or accurately present 

information regarding the true sources 

of cost burdens on the CAT.’’ 250

FINRA further stated that the 

Executed Share Model is inconsistent 

with the ‘‘cost alignment’’ funding 

principle in Section 11.2(b) of the CAT 

NMS Plan, which requires the 

Participants to seek to establish an 

allocation of costs that takes into 

account distinctions in the securities 

trading operations of Participants and 

Industry Members and their relative 

impact upon Company resources and 

operations.251 FINRA stated that ‘‘the 

Proposal fails to establish a sufficient 

nexus between executed share volume 

and the technology burdens that 

generate CAT costs and fails to relate 

each reporter group’s allocation to the 

burden that each reporter group imposes 

on CAT.’’ 252

In response to FINRA’s comment 

raising concerns about the use of trading 

activity as a proxy for costs,253 CAT LLC 

stated that the Proposed Amendment 

would provide an appropriate approach 

for allocating CAT costs because 

Industry Member activity is generally 

for the purpose of effecting transactions, 

and trading activity impacts various 

factors driving CAT costs, such as 

storage, data processing and message 

traffic.254 CAT LLC also stated that the 

Exchange Act does not require fees to be 

directly correlated with the costs 

created by the person charged the fee.255

CAT LLC stated that it is difficult to 

determine the precise cost burden 

created by each CAT Reporter on the 

CAT, and believes trading activity is a 

reasonable proxy for cost burden on the 

CAT.256

CAT LLC responded to the 

commenter’s statement that the 

proposed allocation is inconsistent with 

the cost alignment principles of the CAT 

NMS Plan by noting that the Proposed 

Amendment incorporates the concept of 

cost burden in at least two ways.257

Specifically, CAT LLC stated that it does 

so because ‘‘the allocation of CAT costs 

contemplates the effect of Industry 

Member activity on the cost of the 

CAT. . . and because trading activity 

provides a reasonable proxy for cost 

burden on the CAT, trading activity is 

an appropriate metric for allocating CAT 

costs among CAT Reporters.’’ 258 CAT 

LLC added that because there are other 

examples of trading activity-based fees, 

the Executed Share Model would not be 

novel or unique.259

One commenter also stated that the 

Proposed Amendment made no 

adjustments for sub-dollar trading 

activity in NMS stocks, when 

adjustments were made to volume in 

OTC Equity Securities to adjust for the 

large number of shares transacted in 

sub-dollar securities.260 The commenter 

also stated that it is arbitrary, 

capricious, and unfairly discriminatory 

for the CAT Operating Committee to 

significantly adjust executed share 

volumes for sub-dollar OTC Equity 

Securities but not to do the same for 

sub-dollar NMS stocks, as retail investor 

transactions will be allocated a 

disproportionate percentage of total 

CAT costs simply due to the securities 

traded.261 The commenter stated that 

the CAT Operating Committee must 

explain why it proposes to treat these 

securities differently and analyze the 

impact on retail investors.262 The 

commenter also stated that since 

fractional shares would be rounded up 

to one share, the result would overstate 

volume.263 The commenter stated that 

the Proposed Amendment thus 

discriminates against Industry Members 

that handle retail orders because of the 

amount of retail activity in sub-dollar 

stocks and fractional share trading.264

The commenter stated that the Proposed 

Amendment does not explain why 

volume by shares was chosen over 

notional volume, or address its impact 

on specific Industry Members, investors, 

or overall market competition, 

efficiency and liquidity.265

CAT LLC proposed to delete the 

requirement in existing Section 11.2(b) 

of the CAT NMS Plan to take into 

account ‘‘distinctions in the securities 

trading operations of Participants and 

Industry Members and their relative 

impact upon Company resources and 

operations’’ in establishing the funding 

of the Company.266 CAT LLC explained 

that this requirement is related to using 

message traffic and market share in the 

calculation of CAT fees, as message 

traffic and market share were metrics 

related to the impact of a CAT Reporter 

on the Company’s resources and 

operations.267 CAT LLC explained that 

the requirement is no longer relevant 

because the proposed Executed Share 

Model uses the executed equivalent 

shares metric instead of message traffic 

and market share.268

With respect to the deletion in 

Section 11.2(b) of the requirement that, 

when establishing the funding of the 

CAT, the Operating Committee must 

take into account ‘‘distinctions in the 

securities trading operations of 

Participants and Industry Members and 

their relative impact upon Company 

resources and operations,’’ FINRA 

stated that the Participants have 

proposed to delete the language in 

Section 11.2(b) because the proposed 

Executed Share Model is inconsistent 

with the language.269 FINRA stated that 

the Proposed Amendment ‘‘seeks to 

amend the core funding principles to 

align with an unjustified allocation 

methodology.’’ 270 FINRA stated that 

any changes to the funding principles 

‘‘must be well-reasoned and transparent 

and must continue to support the 

achievement of a fair and equitable 

outcome.’’ 271

In the Commission’s view, 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.272 The proposed use of executed 

equivalent shares would continue to 

incorporate the concept of cost 


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273CAT LLC May 2023 Response Letter at 7. 274 Id. See also Notice, supra note 7, 88 FR at 

17105; see also id. at 17103. 

275See Notice, supra note 7, 88 FR at 17105; see 

also id. at 17103. 

276See Citadel August Letter at 4. 

277See infra notes 1075–1082 and accompanying 

text. 

278See Citadel August Letter at 4–5. 

279See Citadel July Letter at 20. 

280See Notice, supra note 7, 88 FR at 17089. 

281 Id. at 17089, n.23. 

282See Citadel July Letter at 20. See also Citadel 

August Letter at 5. 

283See supra notes 272–275 and accompanying 

text. 

284See Notice, supra note 7, 88 FR at 17105; id. 

at 17101–03. 

285 Id. at 17105. 

286See CAT NMS Plan, supra note 2, at Section 

11.3(a) and (b). 

287See Notice, supra note 7, 88 FR at 17102–03. 

The Original Funding Model uses message traffic as 

the basis of Industry Member CAT fees. See CAT 

NMS Plan, supra note 2, at Section 11.3(b). 

288Notice, supra note 7, 88 FR at 17103. 

289 Id. 

290 Id. at 17102. 

291 Id. 

alignment because trading activity, as 

reflected through executed equivalent 

share volume, would, as CAT LLC 

explained, correlate with the cost 

burden on the CAT.273 It may not be 

possible to directly calculate each CAT 

Reporter’s cost burden on the CAT due 

to the many factors impacting CAT 

costs, such as data processing, storage, 

reporting timelines and requirements, 

and connectivity. But executed 

equivalent share volume is a reasonable 

proxy for those costs because it is a 

result of trading activity, which CAT 

LLC explained impacts various CAT 

cost drivers, such as storage, data 

processing and message traffic.274 In 

addition, because the proposed use of 

executed equivalent share volume 

would preserve the cost alignment 

principle, while no longer relying on 

message traffic, the deletion of the 

requirement in Section 11.2(b) of the 

CAT NMS Plan that the Operating 

Committee, in allocating costs, take into 

account ‘‘distinctions in the securities 

trading operations of Participants and 

Industry Members and their relative 

impact upon Company resources and 

operations’’ 275 is reasonable. 

In response to the commenter that 

urged the CAT Operating Committee to 

demonstrate how the proposed 

allocation would not unfairly 

discriminate against equities market 

participants by subsidizing CAT costs 

related to options market activity,276 the 

Commission believes that subsidization 

of options market activity likely is 

reduced due to other CAT cost burdens, 

such as those relating to data processing 

(such as equity linkage processing, 

which the Commission understands is 

more complex than options order 

linkage processing, and thus more 

costly),277 imposed on the CAT by 

equity market activity. The Commission, 

however, does not believe the failure to 

eliminate the potential subsidization of 

options market activity (and any 

potential attendant impacts on liquidity, 

competition and efficiency) renders the 

Participants’ Funding Model proposal 

inconsistent with the Exchange Act. The 

Commission does not believe it is 

possible for the Participants to predict 

with certainty how the magnitude of 

each driver of CAT costs will change 

over time. To the extent the other costs 

noted above exceed, for example, the 

subsidy accorded to options market 

participants when calculating their 

executed equivalent shares, there may 

be no subsidy or even a reverse subsidy 

from options to equities markets. When 

the relative magnitudes of these cost 

drivers change, the amount of any 

subsidy changes. In light of the potential 

for the cost drivers to change over time, 

the Commission believes that the 

Participants’ proposal is reasonable. 

The Proposed Amendment’s 

treatment of sub-dollar NMS stocks and 

fractional shares is appropriate. The 

Commission does not believe that the 

Participants’ failure to discount subdollar NMS stocks renders the Proposed 

Amendment inconsistent with the 

Exchange Act. The Commission 

acknowledges one commenter’s 

statement that retail investors could be 

allocated a disproportionate percentage 

of total CAT costs due to the lack of a 

discount for sub-penny NMS stocks.278

However, treating a subset of NMS 

stocks differently from NMS securities 

could introduce unnecessary 

complexity or administrative burdens to 

the extent an NMS stock price falls or 

rises above a dollar. It is therefore 

reasonable for the Proposed 

Amendment to treat all NMS stocks the 

same, even though certain sub-dollar 

NMS stocks and fractional shares might 

have characteristics similar to OTC 

Equity Securities. Additionally, in 

response to the commenter’s statement 

that since fractional shares would be 

rounded up to one share, the result 

would overstate volume,279 the 

Commission notes that CAT fees will be 

based on the data contained in the 

transaction reports and transaction 

reports do not provide for fractional 

quantities; therefore, CAT fees cannot be 

calculated using fractional shares or 

fractional share components of executed 

orders at this time.280 CAT LLC stated 

that if FINRA’s equity transaction 

reporting facilities or the exchanges 

report transactions in fractional shares 

in the future, then the calculation of 

CAT fees would also reflect fractional 

shares.281 In response to the comment 

that stated that the Proposed 

Amendment does not explain why 

volume by shares was chosen over 

notional volume,282 calculating the 

notional value of stock introduces 

additional complexity as the notional 

value would have to be calculated and 

would depend on the value of the 

execution or trade, whereas the number 

of executed shares is reported and, in 

the cases of options for example, is 

based on a known multiplier (1/100). 

While the Commission does not 

disagree that using executed notional 

shares may offer advantages and may 

lessen any discrimination, the 

Commission believes that the Proposed 

Amendment’s use of executed shares is 

administratively easier, less prone to 

error, and thus for these reasons and the 

reasons set forth above,283 is a 

reasonable proxy for allocating the cost 

of the CAT. 

The Commission also believes that 

CAT LLC’s explanation that increased 

trading activity correlates with an 

increased cost burden on the CAT is 

reasonable and that executed share 

volume is a reasonable proxy for a CAT 

Reporter’s cost burden on the CAT 284

because increased trading activity 

impacts message traffic, but also data 

processing and storage costs.285 The 

Original Funding Model would have 

used message traffic and market share to 

assess CAT fees on Industry Members 

and Execution Venues, respectively.286

CAT LLC expressed its belief that the 

use of executed equivalent share volume 

would be an improvement on the 

Original Funding Model’s use of 

message traffic,287 explaining that the 

use of executed equivalent share volume 

would result in fees tied to transactions 

(which CAT LLC stated is the 

‘‘traditional source of revenue for 

Industry Members’’ 288), that the 

resulting CAT fees would not adversely 

impact market makers, and that the 

Executed Share Model is simple to 

understand and to implement.289 CAT 

LLC stated that Industry Member 

revenue is often driven by transactions, 

but ‘‘[b]ecause message traffic is 

separate from whether or not a 

transaction occurs, fees based on 

message traffic may not correlate with 

common revenue or fee models,’’ 290

which could negatively impact certain 

Industry Members in a significant 

way.291 CAT LLC stated that use of 

message traffic to calculate fees for 

Industry Members could adversely 

impact market makers because they 


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292 Id. at 17103. 293See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84793; CAT NMS Plan, supra note 

2, at Section 1.1. (defining ‘‘Executing Venues’’). 

294 15 U.S.C. 78ee; Section 31 of the Securities 

Exchange Act requires each national securities 

exchange and national securities association to pay 

transaction fees to the Commission. Specifically, 

Section 31(c) requires each national securities 

association to pay to the Commission fees based on 

the aggregate dollar amount of covered sales 

transacted by or through any member of the 

association other than on an exchange. 15 U.S.C. 

78ee(c). Section 31(a) permits the Commission to 

collect transaction fees and assessments designed to 

recover the costs to the Government of the annual 

appropriation to the Commission by Congress. 15 

U.S.C. 78ee(a). 

295See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84793–97; CAT NMS Plan, supra 

note 2, at Section 11.2, Section 11.3. 

296 Id. 

297See supra note 15. 

298See CAT NMS Plan, supra note 2, at Section 

11.3(a)(i). 

299 In the CAT NMS Plan Notice, the Commission 

said that it preliminarily believed that intake 

capacity level is likely to be a primary cost driver 

for the Central Repository. See Securities Exchange 

Act Release No. 77724 (Apr. 27, 2016), 81 FR 30614 

(May 17, 2016), 81 FR at 30770. 

300See CAT NMS Plan, supra note 2, at Appendix 

C, Section 8.1–8.2. 

301 Id. at Appendix D, Section 4. 

302See supra notes 271–274 and accompanying 

text. 

303See Notice, supra note 7, 88 FR at 17116. 

304 Id. at 17093. A Listed Option contract 

typically represents 100 shares, or it could 

represent another designated number of shares. Id. 

305See proposed Section 11.3(a)(i)(B)(III). 

306See supra notes 227–229 and accompanying 

text. 

307See CAT NMS Plan, supra note 2, at Section 

11.3(a)(i), (ii). 

308The Executed Share Model would count 

executed equivalent share volume differently for 

NMS Stocks, OTC Equity Securities and Listed 

Options for purposes of calculating a CAT fee. CAT 

LLC explains that the proposed approach ‘‘would 

not favor or unfairly burden any one type of 

product or product type.’’ See Notice, supra note 7, 

at 17116. See also supra Section III.A.3. 

generally create high levels of message 

traffic.292 We agree with CAT LLC 

regarding the benefits of the Executed 

Share Model and the drawbacks of the 

Original Funding Model, and thus 

believe that the decision to replace the 

use of message traffic to calculate CAT 

fees with executed equivalent share 

volume in the Executed Share Model is 

reasonable. 

The Commission acknowledges that 

executions do not take place on FINRA; 

however, the CAT NMS Plan already 

categorizes FINRA as an Execution 

Venue because it has trades reported by 

its members to its TRFs for reporting 

transactions effected otherwise than on 

an exchange. Thus, treatment of FINRA 

as an Execution Venue is not a change 

to the existing CAT NMS Plan.293

Additionally, this allocation of fees to 

FINRA is similar to how Section 31 fees 

are assessed on FINRA.294

Moreover, the Executed Share Model 

does not change the criteria used to 

charge Execution Venues (market 

share).295 While there are differences in 

how the CAT fees would be allocated 

among the Participants under the 

Executed Share Model and the existing 

Original Funding Model, under the 

Executed Funding Model, as in the 

Original Funding Model, the fees 

charged to Participants will continue to 

be based upon the level of market share 

of each Participant.296 The Original 

Funding Model approved by the 

Commission would have assessed CAT 

fees on Execution Venues (which would 

include the Participants) 297 based on 

market share determined by the share 

volume for a national securities 

exchange and determined by reported 

share volume of trades for a national 

securities association (i.e., FINRA) that 

had trades reported by its members to 

its trade reporting facility or facilities 

for reporting transactions effected 

otherwise than on an exchange in NMS 

Stocks or OTC Equity Securities.298

Additionally, this allocation is similar 

to how Section 31 fees are assessed on 

the exchanges and FINRA. FINRA’s 

allocation of CAT fees under the 

Executed Share Model will continue to 

be based on its off-exchange market 

share. 

The Commission recognizes that the 

proposed use of executed equivalent 

share volume is not a perfect proxy for 

CAT costs, but believes it is nonetheless 

a reasonable proxy. The costs of CAT 

are attributable to a number of factors, 

such as message traffic, storage, and 

data processing costs, and that for these 

reasons, the Commission understands 

that it is difficult to calculate each CAT 

Reporter’s individual cost burden on the 

CAT. Additionally, there are other 

operational costs of the CAT that cannot 

be easily attributed to a particular CAT 

Reporter and that need to be funded, 

such as costs for CAT NMS Plan 

requirements related to intake 

capacity,299 data search tools 300 and 

data security.301 Based on the breadth of 

CAT costs, it is not feasible to calculate 

the cost burden on CAT of each CAT 

Reporter. A reasonable proxy for CAT 

cost burden must therefore be used. As 

discussed above, the Commission 

believes the proposed use of executed 

equivalent share volume is a reasonable 

method of approximating the cost 

burden of CAT.302 Additionally, CAT 

LLC stated that the proposed Executed 

Share Model would not unfairly burden 

or favor a product or product type 

because the model would recognize the 

different types of securities by counting 

executed equivalent share volume 

differently for NMS Stocks, Listed 

Options and OTC Equity Securities.303

The proposed treatment of these 

different types of securities would result 

in the equitable allocation of reasonable 

CAT fees across these securities. The 

Executed Share Model would count 

each executed contract for a transaction 

in Listed Options using the contract 

multiplier applicable to the specific 

Listed Option in the relevant 

transaction,304 which is appropriate 

because a Listed Option contract 

typically represents 100 shares, or it 

could represent another designated 

number of shares, and since Listed 

Options trade in contracts instead of 

shares, they would need to be converted 

into shares for purposes of calculating 

the executed equivalent share volume of 

a transaction in Listed Options. For OTC 

Equity Securities, the Executed Share 

Model would count each executed share 

for a transaction in OTC Equity 

Securities as 0.01 executed equivalent 

shares,305 which is appropriate because 

CAT LLC represented that this amount 

was a result of an analysis it conducted 

of several different metrics comparing 

the markets for OTC Equity Securities 

and NMS Stocks, specifically total 

notional dollar value, total trades, and 

average share price per trade.306

Additionally, since transactions in OTC 

Equity Securities typically are priced 

below one dollar, or even one penny, 

and tend to trade in larger quantities, 

this treatment is appropriate to prevent 

CAT Reporters trading OTC Equity 

Securities from being assessed higher 

CAT fees than their activity would 

deserve. 

b. Options vs. Equities 

The equal allocation of Participant 

CAT fees to Participants, regardless of 

whether they are transacting in options 

or in equities, is reasonable. The 

Original Funding Model would have 

divided Participant CAT fees by 

Execution Venues that execute 

transactions (or in the case of a national 

securities association, has trades 

reported by its members to its trade 

reporting facility or facilities for 

reporting transactions effected 

otherwise than on an exchange) in NMS 

Stocks or OTC Equity Securities and by 

Execution Venues that execute 

transactions in Listed Options.307 The 

Executed Share Model instead assesses 

a CAT fee based purely on executed 

equivalent share volume.308 CAT LLC 

explained that the use of equivalent 

executed share volume is designed to 


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309See Notice, supra note 7, 88 FR at 17108. 

310 Id. at 17093. 

311See Securities Exchange Act Release No. 

95388 (July 29, 2022), 87 FR 49930 (Aug. 12, 2022), 

at 49931 (stating that FINRA historically has 

overseen off-exchange securities trading activity 

and that ‘‘the Exchange Act’s statutory framework 

places SRO oversight responsibility with a [national 

securities association] for trading that occurs 

elsewhere than an exchange to which a broker or 

dealer belongs as a member.’’), 49932 (stating that 

an exchange would primarily have SRO oversight 

responsibility of its members and their trading on 

the exchange, while SRO oversight of other trading 

activity, such as off-exchange trading, is primarily 

the responsibility of a national securities 

association). 

312See Notice, supra note 7, 88 FR at 17107. 

313 Id. 

314 Id. 

315 Id. 

316 Id. 317 Id. See also CAT LLC May 2023 Response 

Letter at 9. 318See Notice, supra note 7, 88 FR at 17107. 319 Id. at 17108. 320 Id. 321 Id. 

322See FINRA May 2023 Letter; FINRA April 

2023 Letter; FINRA June 2022 Letter; SIFMA May 

2023 Letter; SIFMA June 2022 Letter; SIFMA 

October 2022 Letter. One of the commenters 

supported the points raised in the FINRA April 

2023 Letter that stated that the Proposed 

Amendment would result in the inequitable 

allocation of fees and should be disapproved. See 

SIFMA May 2023 Letter at 2. Another commenter 

supported these points and stated that the fact that 

one of the biggest Participants was so strongly 

opposed to the plan was evidence that it should be 

disapproved. See Virtu Letter at 3. 

323One commenter stated that this estimate is 

based on 2021 data and urged the Commission to 

require the Participants to amend the Proposed 

Amendment to include the 2022 data and fee 

allocation estimates, stating that the CAT budget 

has grown significantly from 2021. See FINRA April 

2023 Letter at 3, 4–5. In its response to comments, 

CAT LLC provided the Historical CAT Costs for 

2022. The total operating expenses increased from 

$144,415,268 in 2021 to $181,107,294 for 2022. See 

Notice, supra note 7, 88 FR at 17111; CAT LLC May 

2023 Response Letter at 13. 

324See FINRA May 2023 Letter at 2; FINRA April 

2023 Letter at 3; SIFMA May 2023 Letter at 2. 

325FINRA April 2023 Letter at 3. 

326 Id. 

327See FINRA June 2022 Letter at 6. 

328FINRA April 2023 Letter at 4; see also FINRA 

June 2022 Letter at 5. 

329See FINRA April 2023 Letter at 8, n.23. The 

commenter also stated that ‘‘TRF volume 

contributes to only a very small percentage of 

annual CAT compute and storage costs.’’ FINRA 

May 2023 Letter at 2. 

330See FINRA April 2023 Letter at 8, n.23; FINRA 

May 2023 Letter at 2. 

331FINRA May 2023 Letter at 2. 

332See FINRA April 2023 Letter at 3. 

333 Id. 

334 Id. 

335 Id. at 4. 

336 Id. at 3, n.8. 

normalize options and equities in the 

calculation of fees, and to recognize and 

address the different trading 

characteristics of different types of 

securities by counting executed 

equivalent share volume differently for 

Listed Options and for equities.309 The 

use of executed equivalent share volume 

and, in particular, the different weights 

assigned to equities versus options, are 

designed to result in an equitable 

treatment of the equities and options 

markets. The proposed treatment of 

these different types of securities 

reasonably equalizes the CAT fees 

across these securities. The Executed 

Share Model would count each 

executed contract for a transaction in 

Listed Options using the contract 

multiplier applicable to the specific 

Listed Option in the relevant 

transaction,310 which is appropriate 

because one options contract typically 

represents 100 shares. 

c. FINRA Allocation 

Under the Executed Share Model, 

because FINRA is the Participant 

primarily responsible for oversight of 

off-exchange securities trading 

activity,311 FINRA will likely have 

greater executed equivalent share 

volume than other Participants 312 and 

thus will be responsible for a significant 

portion of total CAT fees. In the 

Proposed Amendment, CAT LLC stated 

that the size of FINRA’s fee is calculated 

based on the activity in the over-thecounter market.313 CAT LLC stated that 

the executed equivalent share volume 

for over-the-counter trades in Eligible 

Securities in 2021 was 

1,361,484,729,008 out of a total volume 

of 3,963,697,612,395 executed 

equivalent shares for trades in Eligible 

Securities.314 CAT LLC stated that 

approximately 34% of the executed 

equivalent share volume in Eligible 

Securities took place in the over-thecounter market.315

CAT LLC stated that the assessment of 

a CAT fee on FINRA in the same 

manner as the other Participants would 

not result in a burden on competition 

for FINRA or for Industry Members 

engaging in off-exchange activity.316

CAT LLC also stated that FINRA and the 

exchanges should not be evaluated 

differently based upon the potential for 

a particular Participant to recoup its 

CAT fees through charging fees to its 

members or through revenue-generating 

activity other than passing its fees 

through to its members.317 CAT LLC 

stated that each Participant, including 

FINRA, can choose to charge its 

members fees to fund the Participant’s 

CAT fees.318 Additionally, CAT LLC 

stated that FINRA, just like the 

exchange Participants, has revenue 

sources other than membership fees,319

explaining that FINRA generates 

significant revenues via Regulatory 

Services Agreements (‘‘RSAs’’) with the 

exchanges, among other sources.320

According to CAT LLC, these other 

revenue sources may be used to pay 

CAT fees, and, if they are used, would 

not lead to an increase in fees for 

Industry Members.321

Certain commenters objected to the 

proposed allocation of Participant CAT 

fees to FINRA.322 A subset of these 

commenters objected to the allocation to 

FINRA of 34% of the total CAT costs 323

to be borne by the Participants.324

FINRA stated that this amount was a 

‘‘disproportionate share of CAT 

costs,’’ 325 especially as FINRA does not 

operate a market,326 and that the 

Proposed Amendment would place an 

undue burden on FINRA.327 FINRA 

stated that its share was ‘‘more than 

double that of the next highest 

Participant and $4 million more than all 

option exchanges combined.’’ 328 FINRA 

also stated that its allocation would 

largely be based on transaction volume 

reported to the TRF; however, FINRA 

stated that TRF transactions generate 

fewer costs for the CAT,329 as opposed 

to options activity, but that only 25% of 

total Participant CAT fees would be 

assessed for options activity, while the 

remaining 75% would be assessed for 

equities activity.330 FINRA stated that 

‘‘. . . FINRA would be assessed an 

estimated 34% of the total CAT costs to 

be borne amongst the 25 Participants, 

and more than all options exchanges 

combined.’’ 331

FINRA stated that, unlike the 

exchange Participants, transactions are 

not executed on a FINRA marketplace 

and FINRA does not receive commercial 

revenue for those transactions.332

FINRA explained that ‘‘while the NMS 

stock allocation to FINRA under the 

Funding Model is based on transactions 

that are reported to FINRA [TRFs], these 

transactions are not executed on a 

FINRA marketplace and FINRA does not 

retain commercial revenues from those 

transactions’’ 333 unlike the exchanges 

that operate each FINRA TRF, which 

retain the market data and trade 

reporting revenue of the TRF.334 FINRA 

stated that, unlike itself, these 

exchanges would thus have a revenue 

stream related to the transactions that 

would be assessed a CAT fee, and that 

also, unlike FINRA, exchanges generate 

revenue from listings and proprietary 

data feeds in NMS securities.335 FINRA 

also stated that FINRA members can 

report over-the-counter transactions in 

listed stocks to the FINRA Alternative 

Display Facility, although most 

transactions are reported to a TRF.336

FINRA further stated that it cannot 

necessarily recoup its costs through 

RSAs that it has entered into with 


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337This statement was made in response to a 

statement in the Proposed Amendment that FINRA, 

like the exchange Participants, has revenue sources 

other than membership fees, giving as an example 

the RSAs. See Notice, supra note 7, 88 FR at 17107. 

338See FINRA April 2023 Letter at 4. 

339 Id. at 7. 

340 Id. 

341 Id.; see also FINRA June 2022 Letter at 6. 

342See Notice, supra note 7, 88 FR at 17108. See 

also Joint Industry Plan; Order Approving, as 

Modified, a National Market System Plan Regarding 

Consolidated Equity Market Data; Securities 

Exchange Act Release No. 92586 (Aug. 6, 2021), 86 

FR 44142 (Aug. 11, 2021) (File No. 4–757) (‘‘Order 

Approving the CT Plan’’). The Order Approving the 

CT Plan was vacated by the D.C. Circuit on July 5, 

2022. See The NASDAQ Stock Market LLC et al. v. 

SEC, Case No. 21–1167, D.C. Cir. (July 5, 2022). See 

also Securities Exchange Act Release No. 88827; 

File No. 4–757 (May 6, 2020), 85 FR 28702 (May 

13, 2020) (Order Directing the Exchanges and the 

Financial Industry Regulatory Authority to Submit 

a New National Market System Plan Regarding 

Consolidated Equity Market Data). 

343See Notice, supra note 7, 88 FR at 17108. 

344See CAT NMS Plan, supra note 2, at Sections 

11.2 and 11.3. 

345See Notice, supra note 7, 88 FR at 17108. 

346 Id. 

347See FINRA April 2023 Letter at 6; SIFMA 

October 2022 Letter at 3. See also SIFMA May 2023 

Letter at 6, n.11. 

348FINRA April 2023 Letter at 7; FINRA June 

2022 Letter at 6. 

349FINRA April 2023 Letter at 4, 8. See also 

FINRA June 2022 Letter at 8. 

350See SIFMA January 2023 Letter at 3, n.7. 

351See FINRA April 2023 Letter at 6, n.16; SIFMA 

October 2022 Letter at 3. See also SIFMA May 2023 

Letter at 6, n.11. One commenter stated that the 

Participants treat FINRA in ways that are 

financially beneficial to them without considering 

FINRA’s role in the marketplace ‘‘. . . as the notfor-profit self-regulator for the entire brokerage 

industry. . .’’ SIFMA October 2022 Letter at 3. See 

also SIFMA January 2023 Letter at 4; SIFMA 

October 2022 Letter at 4; SIFMA May 2023 Letter 

at 8 (recommending that FINRA be treated 

differently from the Participant exchanges due to its 

unique role). 

352See SIFMA October 2022 Letter at 3–4. See 

also SIFMA May 2023 Letter at 6, n.11. 

353SIFMA October 2022 Letter at 3. See also 

SIFMA June 2023 Letter at 4 (quoting a Commission 

release stating that the Participants are potentially 

conflicted in allocating CAT fees to themselves and 

the Industry Members); supra note 64. 

354SIFMA October 2022 Letter at 2. See also infra 

Section III.A.9.f. (suggesting changes to the 

governance structure of the CAT NMS Plan); see 

also MMI July Letter at 1–3. The latter commenter 

also felt that there should be a disclosure of the 

conflicts of interest the commenter believes are 

inherent in having the funding model determined 

by the Participants.). 

355SIFMA October 2022 Letter at 2. The 

commenter also stated that the Industry Members 

are not voting members of the Operating Committee 

and have no way to direct the cost control efforts 

of the Participants or change their course if the cost 

control efforts prove to be unsuccessful. See SIFMA 

June 2022 Letter at 8. 

356See FINRA April 2023 Letter at 5–7; SIFMA 

June 2022 Letter at 4; Citadel July Letter at 2, 16, 

21, supra notes 73–74 and accompanying text. See 

also SIFMA October 2022 Letter at 2, 3. 

357See FINRA April 2023 Letter at 5–6. See also 

FINRA June 2022 Letter at 7. 

358See FINRA April 2023 Letter at 6. 

359 Id. at 6–7. 

360SIFMA June 2022 Letter at 4. See also SIFMA 

October 2022 Letter at 3 (‘‘. . . we believe the 

proposal is flawed because it fails to appropriately 

consider that Industry Members pay the full costs 

of operating FINRA.’’). 

361See SIFMA June 2022 Letter at 4. 

certain exchanges 337 because the 

exchanges must first agree to be charged 

CAT costs under the RSAs; therefore, 

RSAs would not be a reliable source of 

CAT funding for FINRA.338

Additionally, FINRA questioned CAT 

LLC’s statement that the Proposed 

Amendment ‘‘reflects a reasonable effort 

to allocate costs based on the extent to 

which different CAT Reporters 

participate in and benefit from the 

equities and options markets.’’ 339

Specifically, FINRA asked how this 

explains the size of its allocation 340 and 

noted that this statement ‘‘conflates the 

costs to create and operate the CAT with 

the usage of CAT data.’’ 341

In the Proposed Amendment, CAT 

LLC contested the view that FINRA 

should not be treated as a market center 

for CAT funding purposes merely 

because FINRA is not treated as a 

market center for governance purposes 

under the National Market System Plan 

Regarding Consolidated Equity Market 

Data (‘‘CT Plan’’).342 CAT LLC 

explained that the purpose and 

implementation of the CT Plan and the 

CAT NMS Plan are different.343 CAT 

LLC stated that while the CAT NMS 

Plan explicitly contemplates charging 

fees to all Participants, including 

FINRA,344 and that the CAT is solely for 

regulatory purposes, providing a 

regulatory system to facilitate the 

performance of the self-regulatory 

obligations of all of the Participants, 

including the exchanges and FINRA,345

‘‘[i]n contrast, the CT Plan governs the 

public dissemination of real-time 

consolidated equity market data for 

NMS stocks.’’ 346

Certain commenters expressed 

concern about alleged arbitrary 

treatment of FINRA by the other 

Participants of the CAT NMS Plan.347

FINRA believes that its ‘‘outsized 

allocation’’ 348 was because of its limited 

voting power, only having one out of 25 

votes on the Operating Committee as it 

does not control, nor is under common 

control with, any other Participant.349

Another commenter stated that the 

current CAT NMS Plan voting structure 

results in the unfair and inequitable 

treatment of FINRA.350 Both 

commenters believe that the exchange 

Participants treat FINRA arbitrarily to 

benefit themselves, treating FINRA as a 

market center in the CAT NMS Plan 

while not as a market center under the 

CT Plan, which governs the public 

dissemination of real-time consolidated 

market data for national market system 

stocks.351 One commenter stated that 

the Participants do not treat FINRA as 

a market center under the CT Plan in 

order to limit FINRA’s voting power and 

therefore its ability to decide how to 

allocate market data revenue.352 The 

commenter stated that this example 

demonstrates the ‘‘. . . inherent 

conflicts of interest that for-profit 

exchanges have in operating as 

SROs. . .’’ 353

Certain commenters suggested that 

the Commission issue an order 

soliciting comment on whether the 

Operating Committee should be 

reorganized consistent with the CT 

Plan.354 One commenter stated, ‘‘[w]e 

believe such a governance structure for 

the CAT would help facilitate a fairer 

structure for the views of the SROs and 

industry to be heard and incorporated 

into any further CAT funding proposal 

by reducing the ability of the largest 

exchange groups to dictate the terms of 

any CAT funding proposal over the 

objections of other SRO Participants and 

the industry.’’ 355

Commenters also believe the 

allocation to FINRA would increase the 

allocation to Industry Members.356

FINRA stated that because it relies on 

regulatory fees from its members for 

funding, it must increase its member 

fees in order to fund CAT costs that it 

cannot recover from contractual 

arrangements with TRF business 

members.357 FINRA stated that the 

Proposed Amendment does not 

adequately analyze the allocation’s 

impact, including whether the 

allocation would increase Industry 

Members’ allocation of total costs 

beyond two-thirds.358 FINRA dismissed 

as inadequate the Participants’ argument 

that Industry Members can pass through 

their costs, stating that the Proposed 

Amendment lacks a detailed description 

of and transparency into how the fees 

may be passed on to customers.359

Another commenter stated that the 

Participants ‘‘do not address the fact 

that the Executed Share Model for 

Prospective CAT Costs allocates twothirds of CAT costs to Industry Members 

for exchange transactions and more for 

off-exchange transactions’’ 360 because 

they cannot demonstrate that the 

proposed allocation results in an 

equitable allocation of reasonable 

fees.361 The commenter stated that 

Industry Members, who would be 

subject to two-thirds of Prospective CAT 

Costs under the Executed Share Model, 

already pay FINRA’s operating costs 

through regulatory fines and fees; 


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362 Id. The commenter also stated that the 

proposed allocation would result in two-thirds of 

CAT costs for exchange transactions being imposed 

on Industry Members, and that this amount would 

be higher for off-exchange transactions as FINRA 

would be assessed one-third as the venue fee and 

Industry Members would be indirectly assessed 

FINRA’s portion of CAT costs as they pay the entire 

costs of operating FINRA. Id. See also SIFMA 

October 2022 Letter at 2. 

363See supra notes 100–101 and accompanying 

text. 

364See SIFMA January 2023 Letter at 4. See also 

SIFMA May 2023 Letter at 8; SIFMA June 2022 

Letter at 5; SIFMA October 2022 Letter at 4; supra 

notes 100–101 and accompanying text. 

365See CAT LLC May 2023 Response Letter at 8. 

366 Id. 

367See CAT LLC July 2023 Response Letter at 35. 

368FINRA April 2023 Letter at 7. 

369 Id. 

370 Id. at 3; SIFMA May 2023 Letter at 2. 

371See CAT NMS Plan, supra note 2, at Section 

11.1(b); Section 11.3(a). 

372See Notice, supra note 7, 88 FR at 17103. 

373See 17 CFR 242.608(b)(2). 

374See Notice, supra note 7, 88 FR at 17107. 

375 Id. 

376See FINRA April 2023 Letter at 5–7; SIFMA 

June 2022 Letter at 4; Citadel July Letter at 2, 16, 

21, supra notes 73–74 and accompanying text. See 

also SIFMA October 2022 Letter at 2, 3; FINRA June 

2022 Letter at 4. 

therefore, Industry Members would 

additionally be indirectly assessed 

FINRA’s one-third CAT fee for offexchange transactions.362 The 

commenter suggested an alternative 

allocation 363 that would subject FINRA 

only to a nominal regulatory user fee to 

access CAT Data.364

CAT LLC disagreed with the 

commenter’s proposal to charge FINRA 

only a nominal regulatory fee.365 CAT 

LLC stated that the proposed 

transaction-based CAT fee is purposely 

agnostic as to the location of where a 

trade occurs, and an intent of this 

design is to avoid influencing whether 

or where any trading activity would take 

place. Moreover, CAT LLC stated that 

FINRA is no different from the 

exchanges in terms of its regulatory 

obligations regarding the CAT.366 CAT 

LLC also stated that FINRA’s allocation 

is ‘‘fair and reasonable as FINRA is 

currently, and is expected to continue to 

be, one of the largest regulatory users of 

the CAT, and it is responsible for the 

oversight of the very large over-thecounter securities market.’’ 367

FINRA requested that if the 

Commission were to approve the 

Proposed Amendment, that it 

acknowledge ‘‘FINRA’s need and ability 

to cover CAT costs that are not 

recovered through contractual 

arrangements through member fee 

increases, so as not to jeopardize 

FINRA’s ability to carry out its critical 

regulatory mission.’’ 368 FINRA also 

stated that it would file a rule change to 

increase its member fees with the filing 

of any proposed rule change to 

effectuate the Funding Model.369

The Commission acknowledges the 

comments objecting to the allocation to 

FINRA of 34% of the total CAT costs to 

be borne by Participants,370 but believes 

that it is reasonable for the Proposed 

Amendment to assess fees to FINRA 

based on executed equivalent share 

volume like the other Participants for 

purposes of CAT funding. FINRA is a 

Participant of the CAT NMS Plan. All 

Participants are mandated under the 

CAT NMS Plan to fund the CAT.371 The 

Executed Share Model would assess 

CAT fees based on executed equivalent 

share volume. Under the Executed 

Share Model, CAT fees would be 

allocated among the buyer, seller, and 

the market regulator in each transaction. 

FINRA would pay the Participant CAT 

fee based on off-exchange trades 

reported by its members to its trade 

reporting facilities because FINRA is the 

market regulator responsible for the 

market in which the TRF transactions 

occur. The Executed Share Model, like 

the current funding model, is designed 

to allocate CAT fees among the 

Participants based on market share. 

Since FINRA is generally the market 

regulator for the over-the-counter 

markets, its CAT fees, and thus market 

share, will be based on the trading 

activity in the over-the-counter markets 

reported to it by its members. The 

trading volume of the over-the-counter 

markets is greater than that on the 

exchanges; consequently, FINRA will 

likely be allocated a greater executed 

equivalent share volume than the other 

Participants. However, trading volume 

generates costs for CAT, therefore, given 

its role overseeing the over-the-counter 

market, it is reasonable for FINRA to 

incur a greater share of CAT fees based 

on the over-the-counter market’s trading 

volume. As discussed above, it is 

difficult to calculate each CAT 

Reporter’s individual cost burden on the 

CAT, and a reasonable proxy for CAT 

cost burden must be used. The proposed 

use of executed equivalent share volume 

is a reasonable method of allocating 

costs because it is readily determinable 

and equitable since executed share 

volume is based on trading activity, 

which impacts CAT costs. In practice, 

CAT Reporters will be assessed fees 

corresponding to the cost burden they 

impose on the CAT through their 

trading activity, or in FINRA’s case, 

trading activity in the over-the-counter 

markets reported to it by its members. 

The Commission recognizes that there 

could be other methodologies for 

allocating costs among CAT Reporters, 

such as allocations that take into 

account the manner in which each 

Participant earns revenue, but these 

other methodologies may be 

significantly more complex and would 

not necessarily more accurately reflect 

the cost burden of each CAT Reporter. 

CAT LLC chose to propose the use of 

executed equivalent share volume, 

explaining why trading activity is a 

reasonable proxy for cost burden and an 

appropriate metric for allocating CAT 

costs.372 Although there may be 

multiple permissible approaches to cost 

allocation, the proposed allocation of 

Participant CAT fees based on executed 

equivalent share volume is reasonable 

and meets the Rule 608 approval 

standard.373

The Commission agrees with CAT 

LLC that the Executed Share Model 

reasonably assesses fees to FINRA in the 

same manner based on transaction 

volume as other Participants. The 

Executed Share Model is reasonably 

designed to be neutral as to the manner 

of execution and place of execution.374

All Participants are self-regulatory 

organizations that have the same 

regulatory obligations under the 

Exchange Act, regardless of whether 

they operate as a for-profit or not-forprofit entity. Their regulatory 

responsibilities for the operations of 

CAT are the same.375

The Commission acknowledges the 

concerns expressed by commenters that 

FINRA’s allocation could indirectly 

increase the allocation of CAT fees to 

Industry Members since Industry 

Members contribute to FINRA’s 

funding.376 As discussed above, 

however, the costs of CAT must be 

allocated between the Participants and 

Industry Members according to some 

formula. Although the Participants and 

Industry Members have different means 

of potentially recovering from others 

some of the costs allocated to them (e.g., 

the Participants from Industry Members 

and Industry Members from customers), 

it is reasonable to allocate costs evenly 

among the three parties who have 

primary roles related to the transaction. 

The Commission agrees with CAT LLC 

that Industry Members may be able to 

offset any fees that FINRA assesses them 

by passing their CAT fees through to 

their customers, just as they may do 

with Section 31-related fees and other 

fees. The Commission recognizes, 

however, that not all Industry Members 

currently pass through fees or would 

determine to do so in the future. 

Finally, the Commission does not 

agree that the Participants’ treatment of 

FINRA is arbitrary because FINRA is 

treated as a market center for purposes 


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377The CT Plan provided that an exchange group 

or independent exchange that has more than 15 

percent of consolidated equity market share during 

four of the six calendar months preceding a vote of 

the operating committee would be authorized to 

cast two votes. The CT Plan stated that FINRA is 

not considered a market center for purposes of 

determining consolidated equity market share 

solely by virtue of facilitating trades through any 

TRF that FINRA operates in affiliation with a 

national securities exchange designed to report 

transactions otherwise than on an exchange. See 

supra note 342. 

378See FINRA April 2023 Letter at 6; SIFMA 

October 2022 Letter at 3. See also SIFMA January 

2023 Letter at 4; SIFMA October 2022 Letter at 4; 

SIFMA May 2023 Letter at 8. 

379See supra notes 371–372 and accompanying 

text. 

380See SIFMA October 2022 Letter at 2. 

381See Notice, supra note 7, 88 FR at 17087. 

382 Id. at 17088. The transaction reports used to 

identify transactions and CAT Executing Brokers do 

not provide for fractional quantities; therefore, CAT 

fees would not be calculated using fractional shares 

or fractional share components of executed orders. 

Id. at 17089. See supra notes 280–266 and 

accompanying text. 383Section 4.7 (Order Trade Event) and Section 

5.2.5.1 (Simple Option Trade Event: Side Details) of 

the CAT Reporting Technical Specifications for 

Plan Participants, Version 4.1.0–r17 (Feb. 21, 2023), 

https://www.catnmsplan.com/sites/default/files/ 

2023-02/02.21.2023-CAT-Reporting-TechnicalSpecifications-for-Participants-4.1.0-r17.pdf. 384See Notice, supra note 7, 88 FR at 17087–88. 385See Section 6.1 of the CAT Reporting 

Technical Specifications for Plan Participants (Feb. 

21, 2023). A CAT Executing Broker in over-thecounter transactions identified on the TRF/ORF/ 

ADF Transaction Data Event is determined based on 

the tape or media report, that is, a trade report that 

is submitted to a FINRA trade reporting facility and 

reported to and publicly disseminated by the 

appropriate exclusive Securities Information 

Processor. A CAT Executing Broker for over-thecounter transactions is not determined based on a 

non-tape report (e.g., a regulatory report or a 

clearing report), which is not publicly 

disseminated. There is an exception to this 

statement for away-from-market trades. These are 

non-media trades reported to the TRF with an ‘‘SRO 

Required Modifier Code’’ of ‘‘R’’. 

386See Notice, supra note 7, 88 FR at 17087–88. 387 Id. at 17088. 388 Id. at 17088–89. 389 Id. at 17089. 390 Id. 

391 Id. See also FINRA, Trade Reporting 

Frequently Asked Questions at Section 203, 

available at https://www.finra.org/filing-reporting/ 

market-transparency-reporting/trade-reportingfaq#203; FINRA Regulatory Notice 09–08, available 

at https://www.finra.org/rules-guidance/notices/09- 

08. 

392See Notice, supra note 7, 88 FR at 17089. 

393See proposed Section 1.1. (definition of ‘‘CAT 

Executing Broker’’). 

394Notice, supra note 7, 88 FR at 17089. 

395 Id. 

396 Id. 

397 Id. 

398 Id. 

399 Id. 

400See CAT NMS Plan, supra note 2, at Section 

11.1(d). 

of determining its CAT funding 

obligations while the CT Plan, which 

governs the public dissemination of 

consolidated market data, would not 

have counted FINRA’s market activity 

for purposes of determining the 

allocation of votes on the Operating 

Committee.377 The different treatment of 

FINRA in these NMS plans reasonably 

reflects the very different roles that a 

market center is used for in these 

contexts. The CT Plan provisions 

discussed by the commenters involve 

the determination of which 

Participant(s) could be eligible for a 

second vote on the Operating 

Committee,378 while the Executed Share 

Model proposes to assess FINRA a 

Participant CAT Fee based on its role as 

the regulator for the over-the-counter 

market in which such trades occur.379

The commenter’s request that the 

Commission issue an order soliciting 

comment on whether the Operating 

Committee should be reorganized 

consistent with the CT Plan 380 would 

be better addressed in the context of a 

separate plan amendment. 

4. CAT Executing Broker 

As noted above, CAT Executing 

Brokers will be charged CAT fees.381

CAT LLC proposed to add a definition 

of ‘‘CAT Executing Broker’’ to Section 

1.1 of the CAT NMS Plan. The 

definition would explain which party 

would be identified as a CAT Executing 

Broker in a transaction. 

With respect to transactions on an 

exchange and over-the-counter 

transactions, CAT LLC would use 

transaction reports reported to the CAT 

by FINRA or the exchanges to identify 

the transaction, as well as the CAT 

Executing Broker for each transaction, 

for purposes of calculating the CAT 

fees.382 Under the Participant Technical 

Specifications, for transactions 

occurring on a Participant exchange, 

there is a field for the exchange to report 

the market participant identifier 

(‘‘MPID’’) of ‘‘the member firm that is 

responsible for the order on this side of 

the trade.’’ 383 The Industry Members 

identified in these fields for the 

transaction reports would be the CAT 

Executing Brokers for transactions 

executed on an exchange.384 FINRA is 

required to report to the CAT 

transactions in Eligible Securities 

reported to a FINRA trade reporting 

facility (i.e., the TRF, Over-the Counter 

Reporting Facility (‘‘ORF’’) and 

Alternative Display Facility 

(‘‘ADF’’)).385 Under the Participant 

Technical Specifications, for such 

transactions reported to a FINRA trade 

reporting facility, FINRA is required to 

report the MPID of the executing party 

as well as the MPID of the contra-side 

executing party.386 The Industry 

Members identified in these two fields 

for the transaction reports would be the 

CAT Executing Brokers for over-thecounter transactions.387

For transactions on ATSs, if an ATS 

is identified as the executing party and/ 

or the contra-side executing party in the 

TRF/ORF/ADF Transaction Data Event, 

then the ATS would be a CAT Executing 

Broker for purposes of the Executed 

Share Model.388 If the ATS is identified 

as the executing party for the buyer in 

such transaction reports, then the ATS 

would be the CEBB.389 If the ATS is 

identified as the executing party for the 

seller in such transaction reports, then 

the ATS would be the CEBS.390 If the 

ATS is identified as both the executing 

party and contra-side executing party, 

the ATS would be both the CEBB and 

the CEBS.391 ATSs would determine the 

executing party and the contra-side 

executing party reported to FINRA’s 

equity trading facilities in accordance 

with the transaction reporting 

requirements for FINRA’s equity trading 

facilities.392

For transactions that do not occur on 

an exchange and there is only a FINRA 

member identified for one side of the 

trade, that FINRA member would be 

treated as the CAT Executing Broker for 

both the buy-side and the sell-side of 

the transaction, that is, as the CEBS and 

CEBB.393 Additionally, ‘‘[f]or any trade 

report on which a Canadian nonmember appears as a party to the trade, 

the FINRA member must appear as the 

reporting party.’’ 394 In this situation, 

the executing broker identified in the 

‘‘reportingExecutingMpid’’ field would 

be billed for both sides of the 

transaction.395

The Executed Share Model also 

provides for cancellations and 

corrections.396 CAT LLC stated that it 

expects to determine CAT fees based on 

the transaction reports for a month as of 

a particular day.397 To the extent that 

changes are made to the transaction 

reports on or before the day the CAT 

fees are determined for the given month, 

the changes will be reflected in the 

monthly bill.398 To the extent that 

changes are made to the transaction 

reports after the day the CAT fees are 

determined for that month, subsequent 

bills will reflect any changes via debits 

or credits, as applicable.399 CAT LLC 

represented that it will establish specific 

policies and procedures regarding the 

treatment of such adjustments as those 

related to cancellations and corrections, 

as is required under the CAT NMS Plan 

to adopt policies, procedures, and 

practices regarding the billing and 

collection of fees.400 Furthermore, CAT 

LLC stated that it will inform Industry 

Members and other market participants 


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401See Notice, supra note 7, 88 FR at 17089. 402See SIFMA May 2023 Letter; Letter from 

Timothy Miller, Chief Operating Officer, DASH 

Financial Technologies, LLC to Vanessa 

Countryman, Secretary, Commission (July 13, 2023) 

(‘‘DASH July 2023 Letter’’), at 1–2; Letter from 

Timothy Miller, Chief Operating Officer, DASH 

Financial Technologies, LLC to Vanessa 

Countryman, Secretary, Commission (April 11, 

2023) (‘‘DASH April 2023 Letter’’), at 1–2. Both the 

DASH July 2023 Letter and the DASH April 2023 

Letter incorporated by reference a separate letter 

submitted by the commenter on the prior funding 

proposal (stating that the concerns expressed in the 

prior letter concerning the operating and 

competitive burdens of the proposed funding model 

are unchanged). See Letter from Timothy Miller, 

Chief Operating Officer, DASH Financial 

Technologies LLC, to Vanessa Countryman, 

Secretary, Commission (Jan. 3, 2023) (‘‘DASH 

January 2023 Letter’’). 

403 DASH April 2023 Letter at 1. See also DASH 

July 2023 Letter at 1–2. 

404 DASH April 2023 Letter at 2. See also DASH 

July 2023 Letter at 1–2. The commenter reiterated 

that it believes clearing firms are still best suited to 

process the collection of fees, as this can occur at 

trade settlement and the cost is ultimately borne by 

the end beneficiary of each transaction. The 

commenter further stated that ‘‘there is precedent 

to follow with other Regulatory Fees, such as ORF 

and OCC, to streamline the workflow and reduce 

the number of counterparties involved in the 

payment/collection process,’’ and ‘‘that in the 

options industry, ORF and Section 31 fees are not 

consistently billed to the exchange facing member; 

but, most of the time, these fees follow the clearing 

firm associated with the order.’’ 

405See SIFMA May 2023 Letter at 3. 

406 Id. See also SIFMA January 2023 Letter at 7– 

8. 

407See SIFMA May 2023 Letter at 3–4. See also 

SIFMA October 2022 Letter at 5. The commenter 

also expressed concerns about the assessment of 

CAT fees on clearing firms because clearing firms 

would be required to collect fees and thus would 

have to develop new systems and processes under 

the Executed Share Model, and because a clearing 

firm for a buyer or seller would not always be a 

party to a trade as it could be the clearer of a trade 

on behalf of an executing broker. See SIFMA June 

2022 Letter at 9; SIFMA October 2022 Letter at 7. 

408See SIFMA May 2023 Letter at 4. 

409See Securities Exchange Act Release No. 

94984 (May 25, 2022), 87 FR 33226 (June 1, 2022) 

(‘‘Prior Funding Model Proposal’’). 

410Two partial amendments were submitted on 

the Prior Funding Model Proposal. The first partial 

amendment initially proposed the use of executing 

brokers. See Securities Exchange Act Release No. 

96394 (Nov. 28, 2022), 87 FR 74183 (Dec. 3, 2022). 

The Prior Funding Model Proposal, as modified by 

the two partial amendments, was withdrawn by the 

Participants on March 1, 2023. See Securities 

Exchange Act Release No. 97212 (Mar. 28, 2023), 88 

FR 19693 (Apr. 3, 2023). 

411See SIFMA January 2023 Letter at 2, 8; SIFMA 

December 2022 Letter at 3. See also SIFMA May 

2023 Letter at 4. 

412See SIFMA May 2023 Letter at 4. See also 

SIFMA June 2022 Letter at 9–10; SIFMA October 

2022 Letter at 5. 

413See SIFMA May 2023 Letter at 4. 

414 Id. 

415 Id. at 4–5. 

416 Id. at 5. See also Virtu Letter at 5 (stating that 

it is ‘‘highly likely’’ that executing brokers would 

end up absorbing the fees themselves, as they 

would not have the systems in place to trace to 

whom the fees were properly allocable). 

417See SIFMA May 2023 Letter at 5. 

418 Id. Another commenter similarly objected to 

the imposition of CAT fees on Executing Brokers. 

This commenter, a major wholesaler who also 

serves as the Executing Broker on many 

transactions, stated it was unjust to 

disproportionately burden Executing Brokers in this 

manner, and noted that the cost of designing 

processes and systems to route the fees to the 

appropriate parties could be prohibitive to smaller 

brokers. See Virtu Letter at 4–5. 

419See SIFMA May 2023 Letter at 5. 

420 Id. at 6. 

421 Id. at 5. 

422 Id. at 6. 

of these policies and procedures via 

FAQs, CAT Alerts and/or other 

appropriate methods.401

Certain commenters objected to the 

proposed definition of ‘‘CAT Executing 

Broker.’’ 402 One commenter stated that 

the term ‘‘CAT Executing Broker’’ ‘‘does 

not appear to be universally defined or 

accepted by Option Industry Members 

or Participants’’ and that such lack of 

acceptance ‘‘present[s] a challenge when 

firms try to assess the impact the 

‘Funding Proposal’ will have on their 

respective businesses.’’ 403 Accordingly, 

the commenter advocated that the 

Executed Share Model follow the 

‘‘structure already in place for 

[collecting] Regulatory Fees,’’ such as 

charging Clearing Brokers.404

Another commenter stated that the 

proposed definition of executing broker 

would result in the inequitable 

allocation of fees.405 While the 

commenter supported the change from 

having clearing firms be assessed 

Industry Member CAT fees to executing 

brokers having this obligation,406

because clearing firms would have been 

unfairly burdened with CAT costs and 

could have been placed in situations in 

which they would have been unable to 

identify the client responsible for the 

costs,407 the commenter expressed 

concerns with how the Participants 

determined which entities would be 

considered executing brokers.408 In 

comment letters on the prior funding 

model proposal,409 which was amended 

to require executing brokers instead of 

clearing firms to be assessed CAT 

fees,410 the commenter requested 

additional detail on how an executing 

broker would be defined.411 The 

commenter subsequently stated that the 

definition in the current Proposed 

Amendment suffers from the same 

problems as the prior proposal in which 

CAT fees were allocated to clearing 

firms and would result in the 

inequitable allocation of CAT fees 

among Industry Members.412

The commenter explained that CAT 

operates on a cost-recovery basis, with 

costs resulting from the number of 

messages that Participants and Industry 

Members report to the CAT, the 

processing and linking of such 

messages, and the costs of providing 

tools to regulators to analyze CAT 

data.413 The commenter stated that the 

use of message traffic as the basis of 

fees, in the Original Funding Model, 

would have ensured that all CAT 

Reporters would contribute to CAT’s 

funding.414 However, the commenter 

stated that, since the Proposed 

Amendment would not impose fees on 

all CAT Reporters, instead imposing 

fees on executing brokers, it would 

result in an inequitable allocation of 

fees as the executing brokers would be 

the last broker among many other 

brokers handling an order.415 The 

commenter stated that any analysis of 

such a funding model must evaluate 

whether (i) the executing brokers would 

pass-through or absorb the CAT fees and 

any negative impacts on competition, 

noting that the Proposed Amendment 

would require executing brokers to 

incur expenses that other Industry 

Members would not incur since they 

would be required to collect the 

Industry Member portion of CAT fees on 

behalf of the Participants,416 and (ii) 

Industry Members that executed trades 

for introducing brokers and acted as 

order consolidators and ATSs would be 

responsible for CAT fees for transactions 

they did not originate and would have 

to either pay the fee for their clients or 

develop software and processes to 

collect the fees from their clients as they 

often are not capable of passing through 

fees to the clients that sent them the 

orders.417 The commenter stated that 

the Proposed Amendment would 

subject executing brokers to unfair 

burdens and require them to ‘‘shoulder 

CAT costs in scenarios in which they 

could not determine which client firm 

was responsible for creating the CAT 

costs by initiating the transaction.’’ 418

The commenter suggested instead an 

allocation in which the Industry 

Member that originated an order would 

be treated as an ‘‘executing broker’’ and 

therefore be responsible for Industry 

Member CAT fees.419 Under this 

alternative, ‘‘the Industry Member who 

originates a new principal order or the 

Industry Member who initially receives 

and routes a customer order for 

execution on an agency basis would be 

directly assessed CAT Fees.’’ 420 The 

commenter stated that this would be the 

most reasonable way to allocate CAT 

costs among Industry Members 421 and 

that it would be ‘‘relatively easy to 

accommodate this approach.’’ 422 One 

other commenter also suggested 

allocating costs to the party originating 

an order, stating that this would 


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423See Citadel July Letter at 20. See also id. at 

3, 30, 31. 

424See DASH April 2023 Letter. See also DASH 

July 2023 Letter at 1–2. 

425See DASH April 2023 Letter at 1. See also 

DASH January 2023 Letter at 1; DASH July 2023 

Letter at 1. 

426 DASH January 2023 Letter at 3. See also DASH 

April 2023 Letter at 1–2; DASH July 2023 Letter at 

1–2. 

427 DASH April 2023 Letter at 1. See also DASH 

January 2023 Letter at 1; DASH July 2023 Letter at 

1. 

428 DASH January 2023 Letter at 2; DASH July 

2023 Letter at 1–2. 

429See CAT LLC May 2023 Response Letter at 12; 

CAT LLC July 2023 Response Letter at 3. 

430See CAT LLC July 2023 Response Letter at 3. 

431CAT LLC May 2023 Response Letter at 12. 432 Id. at 2. See also supra note 409. 433CAT LLC May 2023 Response Letter at 3. 434See SIFMA June 2023 Letter at 5. 435See supra note 409. 436See supra note 410. 437See SIFMA June 2023 Letter at 5. 438 Id. 

439 Id. at 5–6. 

440See CAT LLC May 2023 Response Letter at 4. 

441 Id. 

442 Id. at 3. 

443 Id. 

444 Id. 

445 Id. 

446See CAT LLC May 2023 Response Letter at 4. 

447 Id. 

‘‘streamline the process and more 

accurately allocate costs . . .’’ 423

One commenter expressed concerns 

about the imposition of CAT fees on 

CAT Executing Brokers.424 The 

commenter stated that charging CAT 

Executing Brokers ‘‘inordinately 

burdens Broker Dealers, especially small 

to medium-sized firms.’’ 425 This 

commenter recommended using instead 

the existing structure for regulatory fees, 

including ‘‘the efficiencies afforded by 

the current structure, and the resulting 

alleviation of risk.’’ 426 In this regard, 

the commenter stated that ‘‘Clearing 

Firms are best suited to process the 

collection of fees as it can occur at trade 

settlement and the cost is ultimately 

borne by the end beneficiary of each 

transaction.’’ 427 The commenter also 

stated that small and medium-sized 

executing brokers could expect a 

significant negative impact on their net 

capital as a result of the proposal, 

stating, ‘‘. . . the firms will be forced to 

recoup these costs by passing them on 

to their clients, either in the form of 

higher commission rates or as a separate 

transactional fee. Using [Clearing 

Member Trade Agreement] commission 

invoicing and/or SEC 31(b) fees in a 

broker-to-broker relationship as a proxy, 

these invoices are generally paid well 

after the 60-day milestone to qualify the 

receivable as ‘good capital.’ ’’ 428

In response to the comment about the 

definition of CAT Executing Broker and 

the billing and collection process being 

better suited for clearing firms, CAT 

LLC stated that the proposed assessment 

of CAT fees on CAT Executing Brokers 

only addresses the party obligated to 

pay the CAT fee.429 CAT LLC stated that 

a CAT Executing Broker would not be 

required to follow a particular process 

for paying CAT fees, as it could pay the 

fees itself, or require a clearing firm or 

other third party to pay CAT fees on its 

behalf.430 For example, CAT LLC stated 

that a CAT Executing Broker can decide 

to enter into an arrangement with its 

clearing broker for the clearing broker to 

collect and pass-through the CAT fees 

like it does in other contexts.431

With respect to alternatives to the 

proposed definition of the CAT 

Executing Broker, CAT LLC stated that 

the ‘‘originating broker’’ suggestion was 

from a commenter who had previously 

recommended charging executing 

brokers in comment letters on the Prior 

Funding Model Proposal.432 CAT LLC 

stated that the commenter’s objection to 

charging executing brokers in the 

Executed Share Model was an attempt 

to further delay the approval of a 

funding model and the resultant 

payment of CAT fees by its members, 

rather than expressing a concern about 

the merits of charging executing 

brokers.433

In response, the commenter stated 

that the Operating Committee 

mischaracterized the commenter’s 

position on the assessment of CAT fees 

to executing brokers by stating in the 

CAT LLC Response Letter that the 

commenter changed its position on this 

proposed change to delay adoption of a 

CAT funding model.434 The commenter 

represented that it stated in comment 

letters it submitted on the Prior Funding 

Model Proposal 435 that initially 

proposed the use of executing 

brokers 436 that (1) the Participants did 

not define who would be an executing 

broker in a transaction, (2) a clear 

definition is necessary for Industry 

Members to understand when they 

would be assessed costs under the 

Executed Share Model, and (3) its 

understanding was that the concept of 

executing broker generally refers to the 

Industry Member that initiates an 

order.437 The commenter stated that the 

Participants only provided a definition 

of executing broker in the Proposed 

Amendment.438 The commenter stated 

that it provided concerns about the 

proposed definition in its May 2023 

comment letter, which the commenter 

stated were mischaracterized by the 

Operating Committee in the CAT LLC 

Response Letter in an attempt to rush 

the Commission to a decision on the 

Proposed Amendment.439

In response to the comment that 

imposing fees on executing brokers 

would result in an inequitable 

allocation of fees and the suggestion that 

the use of message traffic as the basis of 

fees would have ensured that all CAT 

Reporters would contribute to CAT’s 

funding, CAT LLC disagreed and stated 

that because the message traffic is 

separate from whether or not a 

transaction occurs, fees based on 

message traffic may not correlate with 

common revenue or fee models.440 CAT 

LLC stated that, as a result, CAT fees 

based on message traffic could impose 

an outsized adverse financial impact on 

certain Industry Members, raising this 

same issue of an inequitable allocation 

of fees.441 Further, in response to the 

commenter’s criticism that in charging 

executing brokers, the fee would be 

charged to a subset of Industry Members 

and, as a result, that subset of Industry 

Members would incur expenses that 

other Industry Members would not 

incur, CAT LLC stated that it continues 

to believe that charging CAT Executing 

Brokers would satisfy the requirements 

of the Exchange Act.442 CAT LLC stated 

that in the past, the Commission has 

approved fees that are charged to some, 

but not all, broker-dealers.443 CAT LLC 

noted that, for example, FINRA’s TAF is 

assessed to a subset of FINRA 

members—that is, it is assessed on the 

sell side of member transactions.444

CAT LLC also stated that the options 

exchanges charge options regulatory 

fees per executed contract side, and, for 

both options and equities, Section 31- 

related fees are charged to the sell-side 

in a transaction.445 CAT LLC recognized 

that, under the proposal to charge CAT 

Executing Brokers, the CAT Executing 

Broker, but not other Industry Members 

involved in a given order lifecycle, 

would be required to pay the CAT fees, 

and that Industry Members that sought 

to recoup such fees would have to 

develop processes to collect such fees 

from their clients.446 CAT LLC stated 

that this regulatory requirement would 

have a similar effect as other types of 

regulatory fees, such as the FINRA TAF, 

the options regulatory fee and Section 

31-related sales value pass-through fees 

because, ‘‘[i]n each such case, a subset 

of broker-dealers is required to pay a 

transaction-based regulatory fee, and 

those broker-dealers seeking to recover 

such fees from other broker-dealers or 

non-broker-dealers have established 

processes with regard to the passthrough of such fees.’’ 447

CAT LLC further stated that it 

disagrees with charging an originating 


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448 Id. at 5. See also CAT LLC July 2023 Response 

Letter at 3–4, 4 (detailing challenges of allocating 

CAT costs to originating brokers). 

449See CAT LLC May 2023 Response Letter at 5. 

See also CAT LLC July 2023 Response Letter at 3. 

450CAT LLC May 2023 Response Letter at 5. See 

also CAT LLC July 2023 Response Letter at 4. 

451CAT LLC May 2023 Response Letter at 5. See 

also CAT LLC July 2023 Response Letter at 3. 

452See SIFMA May 2023 Letter at 5. 

453See CAT LLC May 2023 Response Letter at 5. 

454 Id. 

455 Id. 

456See CAT LLC July 2023 Response Letter at 3. 

457 Id. 

458 Id. 

459See Citadel August Letter at 6. 

460 Id. 

461 Id. 

462See Virtu Letter at 5. 

463See CAT LLC July 2023 Response Letter at 9. 

See also id. at 5. 

464CAT LLC July 2023 Response Letter at 10. See 

also id. at 5 (adding that broker-dealers passthrough fees to customers related to Section 31 

fees). 

465 Id. 

466 Id. at 10. See also id. at 5. 

467See Notice, supra note 7, 88 FR at 17086. 

468See SIFMA May 2023 Letter at 5, 6. 

469See 17 CFR 242.608(b)(2). 

470See Citadel August Letter at 6. 

broker instead of an executing broker 

because there are already several 

existing examples of transaction-based 

fees being assessed to executing brokers 

as opposed to the originating broker 

(e.g., TAF, Section 31 fees, ORF fees), 

and it disagrees with the assertion that 

charging originating brokers would be 

easier.448 CAT LLC stated that charging 

the originating Industry Member would 

be difficult to implement and would 

increase the costs of implementing CAT 

fees, whereas charging CAT Executing 

Brokers is simple, straightforward and 

in line with existing fee and business 

models because for any given trade (buy 

or sell), there is only one CAT Executing 

Broker to which shares can be 

allocated.449 As such, CAT LLC stated 

that ‘‘charging the CAT Executing 

Broker is simple and straightforward, 

and leverages a one-to-one relationship 

between billable events (trades) and 

billable parties.’’ 450 CAT LLC stated 

that, for a single trade event, there may 

be many originating brokers, and each 

trade must be broken down on a pro-rata 

basis, ‘‘to account[] for one or more 

layers of aggregation, disaggregation, 

and representation of the underlying 

orders.’’ 451 Therefore, CAT LLC stated 

that one commenter’s 452 ‘‘suggestion of 

a model that begins the funding analysis 

with new order events (e.g., MENO or 

MONO events) and then looks for any 

execution or fulfillment that is directly 

associated with that event does not 

reduce or mitigate the complexity 

associated with aggregation.’’ 453

Further, CAT LLC stated that the 

commenter’s recommendation would 

not work with the design of the CAT 

system, stating that ‘‘[w]hile CAT is 

indeed designed to capture and unwind 

complex aggregation scenarios, the data 

and linkages are structured to facilitate 

regulatory use, and not a billing 

mechanism that assesses fees on a 

distinct set of executed trades; it is not 

simply a matter of using existing CAT 

linkages.’’ 454 CAT LLC also stated that 

charging originating brokers would 

implicate issues related to lifecycle 

linkage rates, and issues related to 

corrections, cancellations and 

allocations, but charging CAT Executing 

Brokers would avoid such 

complications.455 CAT LLC also stated 

that allocating to the originating broker 

would not include Industry Members 

that were only involved in routing and 

execution, which would include ‘‘some 

of the largest Industry Members,’’ 456

and that these Industry Members ‘‘are 

not involved in the origination of orders 

or originate few orders in relation to 

their overall market activity.’’ 457

Furthermore, CAT LLC stated that 

originating brokers would also need to 

establish processes for paying CAT fees, 

just as CAT Executing Brokers would.458

One commenter expressed 

uncertainty about CAT LLC’s response 

that some of the largest Industry 

Members are not involved in order 

origination or originate few orders 

relative to their market activity, stating 

that it is unclear to whom the statement 

is referring since the executing broker 

and the originating broker would be the 

same firm in the case of proprietary 

trading activity.459 Additionally, the 

commenter stated that the originating 

broker model should be pursued if it 

dramatically reduces market-wide 

implementation costs with a marginal 

increase in CAT costs, noting that 

Industry Members could bear most, if 

not all, CAT costs to implement the 

originating broker model.460 The 

commenter stated that, before 

proceeding, the CAT Operating 

Committee must publish an analysis of 

the costs and benefits of the executing 

broker and originating broker models 

including any differences in CAT 

implementation costs and Industry 

Member implementation costs.461

In response to a comment stating that 

executing brokers lacked systems and 

processes to recover costs from their 

clients and would either choose to 

absorb the CAT fees or exit the business 

because of the investments necessary for 

the cost-recovery process,462 CAT LLC 

stated that those Industry Members that 

pass-through CAT fees will accordingly 

need to develop processes to recover the 

fees from their clients, like they do for 

other regulatory-related fees, like the 

TAF, the options regulatory fee and 

Section 31-related fees.463 CAT LLC also 

stated that CAT Executing Brokers 

would ‘‘have full discretion as to 

whether and the manner and extent to 

which they pass on their CAT fees, if at 

all,’’ noting that ‘‘a CAT Executing 

Broker could round up its fees to the 

nearest cent, or decide to charge for, or 

not charge for certain transactions, or 

assess a specific fee or incorporate the 

costs into other fee programs.’’ 464 CAT 

LLC stated that assessing a transactionbased fee to an executing broker and the 

executing broker deciding whether and 

how to pass-through its costs to clients 

is ‘‘not new or novel.’’ 465 Finally, CAT 

LLC noted that the Plan Processor 

would provide trade-by-trade data to 

CAT Executing Brokers, and will offer a 

training program for CAT Executing 

Brokers to help them understand their 

CAT bills.466

In the Commission’s view, CAT LLC’s 

definition of ‘‘CAT Executing Broker’’ is 

reasonable given that the Executed 

Share Model is based upon the 

calculation of executed equivalent 

shares (emphasis added),467 and the 

executing brokers are reasonably suited 

to know their own volume and plan for 

future volume of executed equivalent 

shares to pay the CAT fees. One 

commenter’s suggested approach would 

also result in the assessment of fees on 

a subset of Industry Members 

—originating brokers—and thus could 

raise similar allocation concerns as 

those raised by the commenter about the 

proposed approach.468 In addition, as 

discussed below, the Commission agrees 

with the Participants that the ease of 

administration in using the transaction 

reports to identify the executing broker 

is an advantage of the Proposed 

Amendment. Given the similar issues 

with either approach—either charging 

the fees to a subset of Industry Members 

based on whether they are the ‘‘CAT 

Executing Broker’’ or the originating 

broker—it is reasonable to choose the 

less administratively burdensome of the 

two options. Accordingly, the 

assessment of CAT fees on CAT 

Executing Brokers is reasonable.469

In response to the commenter that 

questioned CAT LLC’s response that 

some of the largest Industry Members 

are not involved in order origination or 

originate few orders relative to their 

market activity,470 the Commission is 

not relying on this statement by CAT 

LLC and understands that the executing 

broker and the originating broker would 

be the same in the case of proprietary 


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471 Id. 

472See proposed Section 11.3(a)(iv)(A) and 

11.3(b)(iv)(A). See also infra Section III.A.7. 

(Calculation Information; Billing and Collection of 

CAT Fees). 

473See Notice, supra note 7, 88 FR at 17089. 

474 Id. 

475See CAT NMS Plan, supra note 2, at Section 

11.1(d). 

476See Notice, supra note 7, 88 FR at 17104. 

477 Id. at 17086. 

478 Id. at 17103. 

479 Id. 

480 Id. 

481 Id. at 17108. 

482See Notice, supra note 7, 88 FR at 17103. 

483 Id. 

484See proposed Section 11.3(a)(i)(A)(I) and (II); 

proposed Section 11.3(a)(iii)(A). 

485See proposed Section 11.3(a)(ii)(A) and 

(iii)(A). 

486 Id. 

487See proposed Section 11.3(a)(i)(A)(I). The Fee 

Rate would be established through a majority vote 

of the Operating Committee. See Notice, supra note 

7, 88 FR at 17108. 

488See proposed Section 11.3(a)(i)(A)(I). 

trading activity. Although one 

commenter suggested that the 

originating broker model should be 

pursued if it dramatically reduces 

market-wide implementation costs with 

a marginal increase in CAT costs,471 the 

Commission believes that the executing 

broker model is reasonable. The 

Commission understands the argument 

that charging originating brokers instead 

of executing brokers would be easier 

and more cost effective for the executing 

brokers, but it would be at the expense 

of the originating brokers. The 

Commission also understands that 

charging executing brokers instead of 

originating brokers is easier and more 

cost effective for the CAT Plan 

Processor. Using CAT Data, the CAT 

Plan Processor can more easily 

determine which executing broker to 

charge. On the other hand, if the CAT 

Plan Processor were to charge 

originating brokers, the Commission 

believes the CAT Plan Processor would 

have to rely on linkages, which may not 

be one-for-one in all circumstances, to 

determine which originating broker to 

charge for an execution. And this 

difficulty not only would add to the 

costs of the CAT but also would impact 

transparency and potentially the relative 

simplicity of the CAT Fees. Moreover, 

the Proposed Amendment does not 

address how executing brokers passthrough CAT fees to their customers. 

Using transaction reports to identify 

the transaction for purposes of 

calculating the CAT fees as well as the 

CAT Executing Broker for each 

transaction for purposes of calculating 

the CAT fees is a straightforward and 

more objective method of identifying 

executing brokers than other methods, 

such as identifying an originating broker 

through an evaluation of CAT linkages. 

Although the definition of ‘‘CAT 

Executing Broker’’ may not be used by 

the industry or universally accepted, 

CAT Executing Brokers will be able 

review their transactions reports and 

request details regarding the calculation 

of their fees, which should allow them 

to better assess the impact of the 

Executed Share Model on their business 

models.472 It is appropriate for CAT LLC 

to establish policies and procedures on 

the treatment of adjustments related to 

cancellations and corrections. CAT LLC 

stated that to the extent changes are 

made to the transaction reports on or 

before the day the CAT fees are 

determined for the given month, the 

changes will be reflected in the monthly 

bill.473 To the extent that changes are 

made to the transaction reports after the 

day the CAT fees are determined for that 

month, subsequent bills will reflect any 

changes via debits or credits, as 

applicable.474 It is appropriate to adjust 

an Industry Member’s or Participant’s 

CAT fees for cancellations and 

corrections when such adjustments are 

made to the transaction reports that are 

used for calculate CAT fees for that 

month. Additionally, under Section 

11.1(d) of the CAT NMS Plan, the 

Operating Committee is required to 

adopt policies and procedures regarding 

the billing and collection of fees.475

It is the Commission’s view that 

charging CEBBs and CEBSs is 

reasonable. The Executed Share Model 

recognizes that there are three parties 

who play significant roles in 

transactions reportable to the CAT: the 

Participant, the buy-side and the sellside.476 The Proposed Amendment also 

is based on executed equivalent shares 

(emphasis added).477 As such, CAT LLC 

stated that charging the CEBBs and 

CEBSs would reflect the executing role 

the CEBB and CEBS have in each 

transaction.478 Additionally, charging 

CEBBs and CEBSs is in line with the use 

of transaction reports from the 

exchanges and FINRA’s equity trading 

reporting facilities for calculating the 

CAT fees.479 Specifically, these 

transaction reports identify CEBBs and 

CEBSs, so charging such entities 

potentially streamlines the fee charging 

process.480 CAT LLC also explained that 

charging both the buy-side and the sellside of a transaction would be 

consistent with other fees, such as the 

options regulation fee.481

In Rule 613, the Commission made 

the determination that the costs of the 

CAT should be shared by the 

Participants and Industry Members. 

Charging CAT Executing Brokers, 

clearing firms or ‘‘originating brokers’’ 

all would impose the costs initially on 

a subset of Industry Members. As 

discussed above, given that the charges 

are based on executed equivalent shares, 

it makes sense to use the CAT Executing 

Brokers as the immediate recipients of 

the charge. Accordingly, the 

Commission agrees with CAT LLC that 

it is reasonable to impose the charge on 

CAT Executing Brokers. The 

Commission acknowledges that 

charging CEBBs and CEBSs would 

impose a burden on such firms, which 

could potentially have an effect on their 

net capital. However, currently, such 

firms regularly pay transaction-based 

fees to the Participants, which they may 

pass-through to their customers who, in 

turn, could pass their CAT fees to their 

customers, until the fee is imposed on 

the ultimate participant in the 

transaction.482 Additionally, unlike 

clearing firms that may simply clear a 

trade on behalf of the executing broker, 

executing brokers are always parties to 

a transaction, including instances that 

may result in CAT costs but not in 

actual trades, such as unexecuted 

orders. The Commission therefore 

agrees with CAT LLC that assessing 

Industry Members CAT fees on CEBBs 

and CEBSs would be reasonable for 

their ‘‘executing role’’ in each 

transaction.483

5. Prospective CAT Fees 

a. Fee Rate Formula 

Under the Executed Share Model, 

Participants, CEBSs and CEBBs would 

be subject to fees designed to cover the 

ongoing budgeted costs of the CAT, as 

determined by the Operating 

Committee.484 Each Participant and 

CAT Executing Broker would be 

required to pay a CAT Fee related to 

Prospective CAT Costs for each 

transaction in Eligible Securities in the 

prior month based on CAT Data.485 CAT 

Fees would be calculated by 

multiplying the executed equivalent 

shares in the transaction by one-third 

and the applicable ‘‘Fee Rate.’’ 486 The 

Commission received no comments on 

the Fee Rate Formula. 

At the beginning of each year, the 

Operating Committee would set the Fee 

Rate to be used to determine CAT 

Fees.487 To calculate the Fee Rate for 

Prospective CAT Costs, the Operating 

Committee would divide the reasonably 

budgeted CAT costs by the reasonably 

projected total executed equivalent 

share volume of all transactions in 

Eligible Securities for that year.488 The 

Operating Committee would base the 

projected total executed equivalent 


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489See proposed Section 11.3(a)(i)(D). 

490See Notice, supra note 7, 88 FR at 17094. 

491See proposed Section 11.3(a)(iii)(B); 15 U.S.C. 

78s(b). 

492See proposed Section 11.3(a)(i)(A)(II). 

493See proposed Section 11.3(a)(i)(A)(I). 

494See infra Section III.A.5.c (Reserves). 

495 15 U.S.C. 78s(b). 

496See proposed Section 11.3(a)(i)(A)(I). 

497 Id. 

498See proposed Section 11.3(a)(i)(A)(II). 499 Id. 500 Id. 501 Id. 502See proposed Section 11.3(a)(i)(A)(III). 503See proposed Section 11.3(a)(i)(A)(IV). 504See proposed Section 11.3(a)(ii)(A) and 

(iii)(A). 

505See proposed Section 11.3(a)(i)(A)(I). 

506See proposed Section 11.3(a)(i)(D). 

507See Notice, supra note 7, 88 FR at 17103. 

508 Id. at 17094. 

509See infra Section III.A.5.c (Reserves). 

510See proposed Section 11.3(a)(iii)(B). 

share volume on the total executed 

equivalent share volume of transactions 

in Eligible Securities from the prior 

twelve months.489 Additionally, CAT 

LLC would permit the Operating 

Committee to use its discretion to 

analyze likely volume for the upcoming 

year 490 and Participants would be 

required to describe the calculation of 

the projection in their fee filings 

submitted to the Commission pursuant 

to Section 19(b) to implement the CAT 

Fee for Industry Members.491 The 

Operating Committee also would be 

required to perform a mid-year 

adjustment of the Fee Rate for CAT Fees 

related to Prospective CAT Costs.492

CAT LLC proposed Section 

11.3(a)(i)(A)(I) of the CAT NMS Plan to 

describe the annual calculation of the 

Fee Rate and the requirement for 

Participants to file a fee filing for CAT 

Fees to be charged to Industry Members 

calculated using the Fee Rate. Under the 

Executed Share Model, the Operating 

Committee will calculate the Fee Rate 

by dividing the reasonably budgeted 

CAT costs for the year by the reasonably 

projected total executed equivalent 

share volume of all transactions in 

Eligible Securities for the year.493

Should the budgeted costs be higher 

than actual costs, any budget surplus 

will be credited against the fees for the 

following year, as CAT LLC cannot hold 

higher than a 25% reserve.494

Once the Operating Committee has 

approved such Fee Rate, the 

Participants shall be required to file 

with the Commission, pursuant to 

Section 19(b) of the Exchange Act,495

CAT Fees to be charged to Industry 

Members calculated using such Fee 

Rate.496 Participants and Industry 

Members will be required to pay CAT 

Fees calculated using this Fee Rate once 

such CAT Fees are in effect with regard 

to Industry Members in accordance with 

Section 19(b) of the Exchange Act.497

Proposed Section 11.3(a)(i)(A)(II) of 

the CAT NMS Plan describes the 

mandatory mid-year calculation of the 

Fee Rate and the requirement for 

Participants to file a fee filing for CAT 

Fees to be charged Industry Members 

calculated using the Fee Rate. Under the 

Executed Share Model, the Operating 

Committee will adjust the Fee Rate once 

mid-year 498 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 the year.499 Once 

the Operating Committee has approved 

the new Fee Rate, the Participants shall 

be required to file with the Commission, 

pursuant to Section 19(b) of the 

Exchange Act, CAT Fees to be charged 

to Industry Members calculated using 

the new Fee Rate.500 Participants and 

Industry Members will be required to 

pay CAT Fees calculated using this new 

Fee Rate once such CAT Fees are in 

effect with regard to Industry Members 

in accordance with Section 19(b) of the 

Exchange Act.501

CAT LLC proposed to add Section 

11.3(a)(i)(A)(III) to the CAT NMS Plan to 

state that CAT Fees related to 

Prospective CAT Costs do not sunset 

automatically; such CAT Fees would 

remain in place until new CAT Fees are 

in place with a new Fee Rate.502

CAT LLC proposed to add Section 

11.3(a)(i)(A)(IV) to the CAT NMS Plan to 

provide that the first CAT Fee may 

commence at the beginning of the year 

or during the year. If it were to 

commence during the year, the CAT Fee 

would be calculated as if it were a midyear calculation.503

The proposed recovery of Prospective 

CAT Costs is appropriate. It is 

appropriate to require that each 

Participant, CEBB and CEBS pay a CAT 

Fee related to Prospective CAT Costs for 

each transaction in the prior month 

based on CAT Data.504 Basing the CAT 

Fee on transaction data from the prior 

month is appropriate as it is recent in 

time and therefore more reflective of 

current market data, and the 

Commission did not receive any 

comments on this issue. 

The 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.505 The use of projected 

executed equivalent share volume in 

determining the Fee Rate is appropriate 

because it would provide the likely 

volume for the year to be used as the 

denominator. It is reasonable to use the 

prior twelve months to determine the 

projected total executed equivalent 

share volume of all transactions in 

Eligible Securities for the year 506

because it would be the most recent data 

available to use to make a projection 

needed to calculate the Fee Rate, and 

the most recent data is on balance more 

likely to resemble the near future. 

Additionally, as noted above, that the 

Commission agrees with CAT LLC’s 

analysis that ‘‘trading activity provides 

a reasonable proxy for cost burden on 

the CAT, and therefore is an appropriate 

metric for allocating CAT costs among 

CAT Reporters.’’ 507 Further, requiring 

that the CAT costs be ‘‘reasonably 

budgeted’’ and projected total executed 

equivalent share volume be ‘‘reasonably 

projected’’ is designed to help impose 

some discipline or constraints in the fee 

setting process. It is reasonable for CAT 

LLC to permit the Operating Committee 

to project the upcoming volume for the 

upcoming year.508 It is not possible to 

know exactly what the volume will be 

before the year begins, so a projection 

will be necessary. If the volume turns 

out to be higher than projected, then 

CAT LLC will be able to use its reserve 

to cover any shortage. If it is lower, 

resulting in a budget surplus, the CAT 

fees for the following year would be 

lower.509 Furthermore, since the 

Participants would be required to 

describe the calculation of the projected 

total executed equivalent share volume 

in the fee filings submitted to the 

Commission, pursuant to Section 19(b) 

of the Exchange Act, to implement CAT 

Fees for Industry Members, the public 

will have an opportunity to review the 

projection and provide comment.510


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511See proposed Section 11.3(a)(i)(A)(I) and (II). 

512See proposed Section 11.3(a)(i)(A)(I). 

513CAT LLC proposed to use budgeted CAT costs 

in calculating CAT Fees rather than costs incurred. 

CAT LLC explained that using budgeted CAT costs 

is necessary to build financial stability to support 

the Company as a going concern, in accordance 

with the funding principle in Section 11.2(f) of the 

CAT NMS Plan, because it would allow CAT LLC 

to collect fees before bills become payable. CAT 

LLC stated that if CAT Fees were only collected 

after bills become payable, Participants would have 

to continue to fund the CAT for all CAT costs to 

pay bills as they are due. See Notice, supra note 7, 

88 FR at 17114. 

514See CAT NMS Plan, supra note 2, at Section 

11.1(a). 

515See proposed Section 11.1(a). 

516See CAT NMS Plan, supra note 2, at Section 

11.1(b). 

517See Notice, supra note 6, 88 FR at 17090. 

518 Id. 

519 Id. CAT LLC has stated that it will consider 

providing additional detailed subcategories 

regarding technology costs, but notes that what it 

is currently providing is consistent with what is 

made publicly available on its website. CAT LLC 

has stated that it will consider the need to provide 

additional detailed subcategories for any area 

besides technology, both because technology costs 

account for the majority of the budget and because 

it is not considered ‘‘best practices’’ to disclose 

detailed legal or insurance information, as these are 

particularly sensitive. Id. Detailed information is 

always available to the Commission for review 

upon request. Id. 

520See SIFMA January 2023 Letter at 6; Citadel 

July Letter at 13–14; FIA Letter at 2–5; Letter to 

Vanessa Countryman, Secretary, Commission, from 

Joseph Corcoran, Managing Director, Associate 

General Counsel and Ellen Greene, Managing 

Director, Equities and Options Market Structure, 

SIFMA, and Howard Meyerson, Managing Director, 

Financial Information Forum, dated July 31, 2023 

(‘‘FIF and SIFMA Letter’’), at 8. 521See SIFMA January 2023 Letter at 6. 522 Id. (stating that CAT spending on technology 

should be broken into further refined cost 

breakdowns of the following categories: cloud 

hosting services, operating fees, CAIS operating fees 

and change request fees). The proposed breakdown 

is consistent with what is currently provided to the 

public. See Notice, supra note 6, 88 FR at 17090. 

See also FIF and SIFMA Letter at 8. 523See SIFMA January 2023 Letter at 6. 524See FIF and SIFMA Letter at 8. The 

commenter stated that the 2023 budget divides 

technology costs, estimated to be $222.5 million 

and 95.3% of total operating costs, into four 

categories with cloud hosting services represents 

75.5% of estimated CAT costs for 2023. Id. The 

commenter requested the Commission and the 

Participants to make publicly available the financial 

terms of the contract between the Participants and 

Amazon Web Services (‘‘AWS’’), the cloud hosting 

services provider, and publish all invoices from 

AWS. Id. The Commission declines to mandate the 

publication of a contract between private parties. 

Similarly, the Commission declines to mandate the 

publication of AWS invoices. The Participants can 

choose to publish this information if they believe 

it is appropriate. 

525See FIA Letter at 2–5. 

526See Citadel July Letter at 13–14. See also id. 

at 23. 

The annual and mid-year adjustments 

of the Fee Rate for Prospective CAT 

Costs 511 are appropriate because they 

would ensure that CAT Fees related to 

Prospective CAT Costs would stay 

aligned with changes to the budget and 

projected volume occurring as the year 

progresses with contemporaneous data. 

Additionally, calculating a CAT Fee that 

starts mid-year as if it were a mid-year 

Fee Rate calculation is appropriate 

because calculating it that way would 

base the CAT Fee on the budgeted CAT 

costs and projected total executed 

equivalent share volume of all 

transactions in Eligible Securities for the 

remainder of the year, rather than for 

the entire year. This is an appropriate 

treatment of a CAT Fee that would 

commence mid-year, not at the 

beginning of the year. 

b. Budgeted CAT Costs 

The calculation of the Fee Rate for 

CAT Fees related to Prospective CAT 

Costs requires the determination of the 

Budgeted CAT Costs for the year or 

other relevant period.512 Proposed 

Section 11.3(a)(i)(C) of the CAT NMS 

Plan provides that the 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.513

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 prudent operation of the 

Company.’’ 514 CAT LLC proposed to 

amend Section 11.1(a) to require the 

Operating Committee to approve a 

reasonable operating budget for CAT 

LLC on an annual basis.515

CAT LLC also proposed to amend 

Section 11.1(b) of the CAT NMS Plan to 

add a reference to Section 11.1. 

Currently, Section 11.1(b) states that 

‘‘[s]ubject to Section 11.2, the Operating 

Committee shall have the discretion to 

establish funding for the Company’’ 

including establishing fees to be paid by 

the Participants and Industry Members 

(that shall be implemented by the 

Participants) . . .’’ 516 CAT LLC 

proposed to add a reference to Section 

11.1 so that ‘‘[s]ubject to Section 11.1 

and Section 11.2’’ the Operating 

Committee would have the discretion to 

establish funding for the Company.517

CAT LLC explained that this proposed 

change is relevant because Section 11.1 

relates to the budget and the budget is 

used to calculate fees.518

CAT LLC also proposed to add 

subparagraph (i) to Section 11.1(a) of the 

CAT NMS Plan to list the types of CAT 

costs to be included in the budget. 

Specifically, CAT LLC proposed to state 

that ‘‘[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 categories as reasonably 

determined by the Operating Committee 

to be included in the budget.’’ 519

Certain commenters noted a lack of 

detail provided on the cost 

categories.520 One commenter stated 

that the budget line item categories are 

too high level.521 The commenter urged 

the inclusion of much greater detail and 

specificity on the budget spending 

choices, especially in technology,522 to 

allow Industry Members and the public 

to understand and evaluate CAT 

spending decisions.523 Similarly, other 

commenters requested more 

transparency into the drivers of CAT 

costs, in particular, technology costs, 

which they stated is the largest expense 

item.524 One commenter stated that 

their ‘‘concerns are exacerbated by the 

general lack of transparency coming 

from the CAT Operating Committee. 

Despite continued requests for 

information about key drivers of the 

rapidly growing CAT costs, the CAT 

Operating Committee points to highlevel financial and operating budgets 

published by the Committee that merely 

provide broad categories of costs and 

expenses. Likewise, in the current 

structure, the SEC staff also have no 

incentive to control costs . . . This 

process does not afford industry 

members with appropriate notice of, 

and opportunity to comment on, 

material changes to the CAT. Nor does 

it adhere to the requirements under the 

Exchange Act to weigh the costs and 

benefits of proposed changes to the 

NMS plan.’’ 525 Another commenter 

stated that the Operating Committee 

refuses to provide cost transparency, 

such as more details on the broad 

expense categories provided in the 

operating expenses (as well as the 

Historical CAT Costs) provided in the 

Proposed Amendment.526 The 


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527 Id. at 2, 15, 26. 

528 Id. at 2. 

529 Id. at 11. Rule 613(a)(5) of Regulation NMS 

requires the Commission to conduct an assessment 

of the Proposed Amendment’s impact on efficiency, 

competition and capital formation, which is not the 

same economic analysis as the Commission 

conducts when engaged in a rulemaking. 17 CFR 

242.613(a)(5). The Proposed Amendment contains 

the information needed for the Commission to 

conduct this assessment. See infra Section IV. See 

also infra note 1044. 

530See Citadel July Letter at 33–35. 

531 Id. at 3, 34. 

532 Id. See also FIF and SIFMA Letter at 13. 

533See Citadel July Letter at 3, 32. 

534 Id. at 32. 

535 Id. 

536 Id. 

537See SIFMA May 2023 Letter at 3, 8–10; Citadel 

July Letter at 8, 26, 27; FIF and SIFMA Letter at 8– 

9; SIFMA AMG Letter at 3. See also SIFMA October 

2022 Letter at 5–6; SIFMA January 2023 Letter at 

2, 5–6; SIFMA June 2023 Letter at 2, n.10, 4; Virtu 

Letter at 4; MMI July Letter at 3–4; FIA Letter at 3, 

5. 

538See, e.g., MMI July Letter at 3; Virtu Letter at 

4, FIF and SIFMA Letter at 2, 5–9; SIFMA AMG 

Letter at 3. 

539FIF and SIFMA Letter at 2, 5. The commenter 

stated that internal costs and costs associated with 

trading workflow changes to comply with certain 

CAT reporting requirements should also be 

considered, arguing that these costs would 

significantly exceed CAT operating costs are 100% 

paid for by broker-dealers and exchanges. Id. at 2, 

5, 6. 

540 Id. at 8. 

541 Id. 

542 Id. at 7, 9. 

543 Id. at 9. 

544FIF and SIFMA Letter at 4. 

545 Id. 

546See SIFMA AMG Letter at 3. 

547See SIFMA May 2023 Letter at 3, 8–10. See 

also SIFMA October 2022 Letter at 5–6; SIFMA 

January 2023 Letter at 2, 5–6; SIFMA June 2023 

Letter at 2, n.10, 4; Citadel July Letter at 2, 26 

(stating that that ‘‘the trajectory of annual operating 

expenses is unconstrained,’’ and that the 

‘‘magnitude and trajectory’’ of the costs are not 

reasonable since Industry Members have borne 

nearly all CAT-related costs’’); Citadel August Letter 

at 7. 

548 15 U.S.C. 78s(b). 

549See SIFMA May 2023 Letter at 8–9. See also 

SIFMA June 2022 Letter at 8–9; SIFMA October 

2022 Letter at 6; SIFMA January 2023 Letter at 5, 

6. 

550SIFMA May 2023 Letter at 9. 

551 Id. at 9–10. 

552 Id. See also SIFMA January 2023 Letter at 6. 

553See Citadel July Letter at 3, 33. 

554 Id. 

555 Id. at 14. 

commenter believes that the lack of 

transparency into costs would prevent 

the Commission from finding that the 

proposed allocation methodology is 

reasonable 527 and would raise concerns 

that inappropriate expenses would be 

allocated to Industry Members, like 

litigation expenses incurred by the 

Operating Committee against the 

Commission, and expenses prohibited 

by the Financial Accountability 

Amendments from being recovered by 

the Operating Committee.528 The 

commenter also stated that the Proposed 

Amendment lacks sufficient detail for 

the Commission to perform the required 

economic analysis.529

The commenter suggested 

enhancements to improve budget 

transparency.530 The commenter 

suggested that all CAT operating 

budgets should remain published on the 

CAT website 531 and that any material 

change to the CAT system, related 

technology contracts or implementation 

scope should require the filing of an 

NMS plan amendment explaining the 

necessity of the change and include a 

robust cost-benefit analysis.532

In addition, the commenter suggested 

that exchanges be responsible for costs 

that exceed the budget in order to 

incentivize cost control,533 and that 

Industry Members should not be 

allocated costs for matters specifically 

for the benefit of the Operating 

Committee or the Commission (such as 

costs related to litigation ‘‘or filings that 

are inconsistent with the Exchange 

Act’’ 534), stating that ‘‘Industry 

Members should also not be allocated 

costs relating to how data is presented 

to, and used by, regulatory Staff at the 

SROs or the Commission.’’ 535

Furthermore, the commenter suggested 

that change requests that do not involve 

specific NMS Plan requirements should 

be allocated to the requestor, including 

the Commission.536

Commenters also discussed a need for 

a cost review mechanism,537 with 

several commenters citing to high 

operating costs as evidence for the need 

of one.538 One commenter stated that 

CAT costs are increasing at an 

unsustainable level and need to be 

controlled.539 The commenter stated 

that the Commission lacks a process to 

manage CAT costs as CAT operating 

costs are not part of the Commission’s 

budget and do not require an 

appropriation.540 The commenter urged 

that there is a need to allow the public, 

the Commission and industry to have a 

better understanding of the drivers of 

CAT operating costs,541 why they have 

exceeded the operating costs estimated 

in the CAT NMS Plan,542 and why they 

are projected to increase 27% from 2022 

to 2023.543 The commenter requested 

that the Commission direct the 

Participants to analyze the increase in 

CAT operating costs and to evaluate 

future expected annual CAT operating 

cost increases,544 and also advised the 

Commission not to mandate any new 

processing or reporting requirements 

until such analysis has concluded.545

One commenter stated that asset 

managers were concerned about the lack 

of an independent cost review 

mechanism for the CAT budget to 

ensure that future fees are fair and 

reasonable and spending will be 

appropriate and cost-effective.546

Similarly, another commenter stated 

that an independent cost review 

mechanism is necessary to ensure future 

CAT fees are fair and reasonable and to 

safeguard against unchecked 

spending.547 The commenter urged the 

inclusion of a mechanism to allow the 

public to review the annual CAT budget 

before it is finalized, since, as proposed, 

the public would only have the 

opportunity to review the CAT budget 

when the Participants submit proposed 

rule changes, pursuant to Section 19(b) 

of the Exchange Act,548 to implement 

CAT fees on Industry Members.549 The 

commenter also stated that it is unlikely 

that the Commission would decide that 

a proposed CAT fee does not meet 

Exchange Act fee standards and require 

the Participants to modify the CAT 

budget because it would be a lengthy, 

time-consuming process and due to ‘‘the 

regulatory value of CAT data and the 

CAT system to the Commission.’’ 550

The commenter stated that the 

Commission is ‘‘directly conflicted in its 

role as the user and beneficiary of the 

CAT system for regulatory functions and 

its role as the reviewer of the CAT 

budget and fee filings, a conflict that is 

only heightened due to a lack of a 

Commission funding obligation for 

CAT.’’ 551 The commenter also 

requested that ‘‘the Participants’ 

proposed budget include as a separate 

line-item projected usage costs and 

system change costs related to the 

Commission’s use and design of the 

CAT system.’’ 552 Similarly, another 

commenter suggested that an 

independent expert committee assess 

whether cost levels and third party 

arrangements are reasonable, and 

whether more cost-control measures are 

warranted,553 and that the Commission 

formally approve the CAT budget on an 

annual basis.554 The commenter further 

stated that the Proposed Amendment 

made no attempt to specify the key 

drivers of costs, such as explaining the 

requirements that resulted in significant 

cost increases, or the design alternatives 

the Operating Committee previously 

considered.555 The commenter added 

that Industry Members must fund a 25% 

reserve above budgeted amounts, and 

ad-hoc discussions between the 

Operating Committee and the 


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556 Id. at 26. 

557See Citadel July Letter at 33–35. 

558 Id. at 3, 32–33. One other commenter echoed 

some of these same considerations. See MMI July 

Letter at 4. 

559See Citadel July Letter at 3, 33. 

560 Id. 

561 Id. 

562See FIA Letter at 3. See also Citadel August 

Letter at 2. 

563FIA Letter at 5. 

564See Citadel July Letter at 3, 34. 

565See CAT LLC July 2023 Response Letter at 26. 

566 Id. 

567See Citadel July Letter at 32. 

568See CAT LLC July 2023 Response Letter at 12. 

569 Id. 

570 Id. 

571 Id. 

572 Id. 

573See SIFMA May 2023 Letter at 3, 8–10. See 

also SIFMA October 2022 Letter at 5–6; SIFMA 

January 2023 Letter at 2, 5–6; SIFMA June 2023 

Letter at 2, n.10, 4; Citadel July Letter at 3, 33; FIA 

Letter at 5. 

574See CAT LLC May 2023 Response Letter at 10. 

575 Id. 

576 Id. 

577 Id. 

578 Id. 

579See SIFMA June 2023 Letter at 2. 

580See Citadel July Letter at 33; FIA Letter at 5; 

MMI July Letter at 2; SIFMA June 2023 Letter at 2; 

id. at n.10; Virtu Letter at 4. 

581See CAT LLC July 2023 Response Letter at 19. 

582 Id. at 20. 

583 Id. at 19–20. 

584 Id. at 20. 

585See Citadel July Letter at 33. 

586See CAT LLC July 2023 Response Letter at 20– 

21. 

Commission could result in higher 

costs.556

The commenter also suggested 

enhancements to reduce overall CAT 

operating costs.557 Specifically, the 

commenter suggested that the Operating 

Committee and the Commission stop 

making changes to the CAT to stabilize 

operating costs, stating that there are 

changes slated for development that are 

currently subject to exemptive relief, 

and other requirements the commenter 

believes are outside the scope of the 

CAT NMS Plan that would result in 

costs that outweigh benefits.558 The 

commenter suggested that the Operating 

Committee file an updated NMS plan to 

reflect the status quo,559 and work with 

the Commission and industry to identify 

technical requirements that could be 

modified to reduce costs without 

sacrificing the key benefits of the CAT 

system, like moving timelines from T+1 

to T+2.560 The commenter also 

suggested that steps should be taken to 

streamline the CAT submission process 

to minimize reporting errors and to 

reduce industry implementation costs, 

like implementing further data 

validation.561 One commenter stated 

that if the Participants ‘‘determine to 

charge their members fees to fund their 

share of CAT fees,’’ then Industry 

Members would bear 100% of CAT 

costs, and thus,’’[w]ith little to no skinin-the-game, the Participants will not be 

incentivized to control costs.’’ 562 The 

commenter further stated that they join 

other commenters in calling for an 

‘‘independent cost review 

mechanism.’’ 563

In response to the comment that 

suggested that all CAT operating 

budgets should remain published on the 

CAT website,564 CAT LLC stated that it 

publishes its annual financial 

statements from 2017-on and 

voluntarily publishes its annual 

operating budget and updates to the 

budget occurring during the year.565

CAT LLC stated that, in response to the 

comment, it intends that prior CAT 

operating budgets will stay available on 

the CAT website.566

In response to a commenter 

suggesting that the exchanges be 

responsible for any costs that exceeded 

the approved budget,567 CAT LLC stated 

that this suggestion would not result in 

a fair and equitable allocation consistent 

with the Exchange Act because Industry 

Member trading activity ‘‘contributes 

significantly’’ 568 to CAT costs and it 

would not be fair for Participants to bear 

CAT costs exceeding the budget if 

unexpected increases in trading volume 

resulted in the increased CAT costs.569

CAT LLC also stated that this suggestion 

could incentivize the Participants to 

base the budget on ‘‘the most 

conservative projections for future 

Industry Member data volume’’ 570 to 

not be responsible for costs that go over 

the budget.571 In addition, CAT LLC 

noted that the Proposed Amendment 

would include both a requirement to 

adjust the Fee Rate during the year to 

address any changes in projected or 

actual transaction volume or budgeted 

or actual CAT costs, and an operational 

reserve to address shortfalls in collected 

fees versus actual CAT costs.572

In response to suggestions to use an 

independent cost review mechanism,573

CAT LLC stated that such a review 

process is unnecessary because it would 

go beyond what is required by either 

Rule 613 or the CAT NMS Plan, and 

would be superfluous since any CAT 

fees must, prior to being implemented, 

undergo the review process detailed in 

Rule 608 and Section 19(b) of the 

Exchange Act.574 CAT LLC also noted 

that the Commission is entitled to 

request additional budget or cost 

information it views as necessary to 

better evaluate those fees.575 CAT LLC 

also stated that it already provides 

significant cost transparency through 

the public disclosure of its quarterly 

budget information and its financials, 

and that it is already actively engaged in 

cost discipline efforts, including 

through a designated cost-management 

working group.576 CAT LLC further 

explained that Participants are subject 

to regulatory requirements to implement 

CAT and oversee their members and 

cannot have their compliance subject to 

a third party without such 

restrictions.577 CAT LLC added that the 

Commission itself could have its ability 

to oversee the securities markets 

undermined if CAT is subject to review 

by a third party without regulatory 

restrictions.578 In response, one 

commenter stated that the CAT LLC 

Response Letter did not meaningfully 

address its concerns about the lack of a 

cost control mechanism.579

CAT LLC provided a further response 

to commenters that recommended the 

adoption of an independent cost review 

mechanism for CAT costs,580 stating 

that a review process is not necessary or 

appropriate.581 CAT LLC explained that 

it is already actively involved in cost 

discipline efforts, such as through a 

designated cost management working 

group, and already provides ‘‘significant 

cost transparency’’ by publishing its 

quarterly budget information and 

financial information.582 CAT LLC also 

stated that such a review process would 

go beyond the requirements of Rule 613 

and would be unnecessary because 

changes to the funding model would be 

filed as a plan amendment under Rule 

608 of Regulation NMS and CAT fees for 

Industry Members would be filed 

pursuant to Section 19(b) of the 

Exchange Act, and both processes 

would permit the public to comment on 

such proposals.583 CAT LLC further 

stated that providing a third-party that 

does not have regulatory obligations 

control over the annual budget could 

‘‘impermissibly restrict the Participants 

from discharging their regulatory 

obligations’’ and undermine the 

Commission’s ability to oversee the 

securities markets.584 CAT LLC also 

responded to the commenter that urged 

the Commission to annually approve the 

CAT budget 585 by stating that such an 

approval process would not be 

necessary or appropriate as CAT LLC is 

a private entity subject to the 

requirements of the Exchange Act, not a 

governmental entity, and CAT fees 

would be filed with the Commission 

under Rule 608 of Regulation NMS and 

Section 19(b) of the Exchange Act and 

subject to the Commission’s review for 

consistency with the Exchange Act.586


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587 Id. at 21. 

588See FIA Letter at 4–5. 

589See CAT LLC July 2023 Response Letter at 26. 

590 Id. 

591See Citadel July Letter at 7–9, MMI July Letter 

at 1, 4, SIFMA June 2023 Letter at 4; Virtu Letter 

at 4. 

592See CAT LLC July 2023 Response Letter at 22– 

25. 

593 Id. at 22. 

594 Id. 

595 Id. 

596 Id. at 23. 

597 Id. at 24. 

598See CAT LLC July 2023 Response Letter at 25. 

599See Citadel July Letter at 33. 

600See CAT LLC July 2023 Response Letter at 25– 

26. 

601See, e.g., Citadel August Letter at 8; Citadel 

July Letter at 2, 5. The Commission acknowledges 

a commenter’s suggestion that the Commission 

perform its own analysis of the budget increases. 

Under the Proposed Amendment, the Participants 

must submit Rule 19b–4 filings that include a 

discussion of the budget that was used to calculate 

the Fee Rate. At such time the Commission, 

Industry Members and the public will have an 

opportunity analyze the budget. This Order, which 

approves the Funding Model, does not weigh-in on 

the budgets or the resulting Fee Rates. 

602See SIFMA May 2023 Letter at 3, 8–10; Citadel 

July Letter at 8, 26, 27; FIF and SIFMA Letter at 2, 

5–9; SIFMA AMG Letter at 3. See also SIFMA 

October 2022 Letter at 5–6; SIFMA January 2023 

Letter at 2, 5–6; SIFMA June 2023 Letter at 2, n.10, 

4; Virtu Letter at 4; MMI July Letter at 3–4; FIA 

Letter at 3, 5. 

603See CAT NMS Plan, supra note 2 at Section 

6.2(a)(v)(B). 

604See Notice, supra note 7, 88 FR at 17117. 

605See CAT NMS Plan, supra note 2, at Section 

9.2(a). Section 9.2(a) states that unaudited 

statements shall be subject to year-end adjustments 

and may not include footnotes. 

606See Notice, supra note 7, 88 FR at 17117. CAT 

LLC also lists the following as cost-control 

mechanisms: (1) CAT LLC must operate on a breakeven basis, in which fees would be used to recover 

costs and a reserve, and a surplus would be treated 

as an operational reserve to offset future fees (see 

CAT NMS Plan, supra note 2, at Section 11.1(c)); 

(2) CAT LLC qualifies as a Section 501(c)(6) 

business league, which means it is not organized for 

profit and no part of its net earnings can inure to 

the benefit of any private shareholder or individual 

(26 U.S.C. 501(c)(6)). 

Furthermore, CAT LLC stated that the 

Commission can request budget and 

financial information from CAT LLC if 

necessary for the evaluation of CAT fee 

filings.587

In response to the commenter that 

asked whether the Participants would 

have an incentive to manage costs 

because they proposed to allocate most 

costs to Industry Members,588 CAT LLC 

stated that it ‘‘strongly disagrees with 

the suggestion that the Participants 

would not be incentivized to control 

CAT costs if they are only responsible 

for one-third of the CAT costs going 

forward.’’ 589 CAT LLC stated that the 

Participants have been focused on cost 

management when paying 100% of CAT 

costs and will continue this focus since 

they will be paying one-third of CAT 

costs, a ‘‘significant incentive to keep 

costs at an appropriate level.’’ 590

In response to comments expressing 

concern about increasing CAT operating 

costs,591 CAT LLC described its 

commitment to cost management,592

stating that cost management is a top 

priority and that it works to reduce costs 

in a number of ways, including through 

the Cost Management Working Group 

comprised of senior members of the 

Participants that works to find and 

address cost management needs.593 CAT 

LLC also noted that Rule 613 and the 

CAT NMS Plan ‘‘impose significant 

regulatory obligations on the 

Participants regarding how to design, 

build and operate the CAT System’’ and 

that the Commission could compel the 

Participants to comply with Rule 613 or 

the CAT NMS Plan through enforcement 

actions if CAT LLC and the Participants 

ever fail to do so.594 CAT LLC stated 

that its largest cost driver is the 

processing and storage of CAT data in 

the cloud, representing 75% of all CAT 

costs.595 CAT LLC stated that 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 costs,’’ 

limiting CAT LLC’s cost management 

efforts, and provided examples where 

CAT LLC and the Plan Processor 

worked to optimize cloud cost savings 

despite regulatory constraints.596 CAT 

LLC described other steps it has taken 

to save costs, such as through requests 

to the Commission for exemptive relief 

and litigation challenging the 

Commission’s interpretation of specific 

requirements of the CAT NMS Plan,597

as well as identification of other 

changes that could substantially lower 

costs but would require exemptive relief 

or the filing of a Plan amendment.598

In response to one commenter’s 

recommendation that CAT LLC work 

with the Commission to identify 

technical requirements that could be 

modified to reduce costs without 

sacrificing the key benefits of the CAT 

system,599 CAT LLC stated that both it 

and the Plan Processor work to identify 

and raise with Commission staff 

potential fundamental changes to the 

CAT NMS Plan that would limit costs 

without compromising on regulatory 

goals, and provided examples of such 

changes.600

The Commission acknowledges the 

comments expressing concern about 

increases to the CAT operating budget, 

particularly why it is now five times the 

amount estimated in the CAT NMS Plan 

Approval Order,601 and the comments 

urging the need for a cost review 

mechanism,602 but believes the 

Participants have reasonably explained 

why they chose not to include an 

independent cost review mechanism for 

budgeted CAT costs for the reasons 

stated above and in the Notice. Given 

the transparency of the budget and Rule 

19b–4 process, the one-third allocation 

of costs to Participants, which provides 

them with at least some incentive to 

control costs, and the pre-existing 

requirement for an independent audit of 

all fees, costs and expenses incurred by 

the Participants prior to filing this 

amendment,603 it is reasonable not to 

have an additional independent costreview mechanism for the reasons set 

forth above. The Commission believes 

that the incentive to control costs still 

exists even if the Participants passthrough to Industry Members some or 

most of the costs of the CAT. This is 

because, in order to pass-through CAT 

costs, the Participants would have to 

submit rule filings under the Section 

19(b) fee filing process. To the extent 

the Participants fail to control costs, 

their ability to demonstrate that a 

proposed fee is reasonable and 

consistent with the Exchange Act may 

be compromised. While the above 

obligations and controls are sufficient, 

other cost discipline mechanisms 

proposed by CAT LLC would provide 

beneficial cost transparency, which 

would help keep fees and costs 

reasonable.604 For example, (1) Section 

9.2(a) of the CAT NMS Plan requires 

CAT LLC to make public an audited 

balance sheet, income statement, 

statement of cash flows and statement of 

changes in equity, and requires the 

Operating Committee to maintain a 

system of accounting established and 

administered in accordance with GAAP 

and to prepare financial statements or 

information supplied to the Participants 

in accordance with GAAP; 605 (2) CAT 

LLC publicly provides the annual 

operating budget and updates to the 

budget on the CAT NMS Plan website 

and also has held webinars about CAT 

costs and alternative funding models; 

(3) involvement by CAT LLC and FINRA 

CAT in efforts to reduce CAT costs 

through CAT working groups and 

review of options to lower costly needs 

and obtain services in a cost-effective 

manner; and (4) Commission oversight 

of CAT funding through attendance at 

Operating Committee, Subcommittee 

and working group meetings and review 

of the Proposed Amendment and any 

associated CAT fees.606 Additionally, 

the specification of the items required to 

be included in the operating budget is 


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607 15 U.S.C. 78s(b). 608See proposed Section 11.1(a)(i); proposed 

Section 11.3(a)(iii)(B) (requiring the information to 

be provided in the Industry Member CAT Fee 

filings submitted by the Participants to be of 

sufficient detail to demonstrate that the budget for 

the upcoming year, or part of year as applicable, is 

reasonable and appropriate). 609See Notice, supra note 7, 88 FR at 17090. 610 Id. at 17117. 611See supra note 522. 

612See proposed Section 11.3(a)(iii)(B); proposed 

Section 11.3(b)(iii)(B)(II). 

613See SIFMA May 2023 Letter at 9–10. 614See 17 CFR 242.608(a)(1) (stating that NMS 

plans are filed by two or more SROs). 615See 17 CFR 242.608(b)(2), (c), (d); 17 CFR 

242.613(h). 

616See SIFMA May 2023 Letter at 10. CAT LLC 

May 2023 Response Letter at 11. 

617See SIFMA May 2023 Letter at 10. 

618See CAT LLC May 2023 Response Letter at 11. 

619All Participants are required to use the CAT 

in their surveillance programs. See CAT NMS Plan, 

supra note 2, at Section 6.10. 

620For further discussion, see infra Section 

III.A.9.c.–d. 

621See Citadel July Letter at 33–35. 622 Id. 623See Securities Exchange Act Release No. 

97350 (May 18, 2023), 88 FR 33655 (May 24, 2023); 

Securities Exchange Act Release No. 90689 (Dec.16, 

2020), 85 FR 83667 (Dec. 22, 2020); Securities 

Exchange Act Release No. 90688 (Dec. 16, 2020), 85 

FR 83634 (Dec. 22, 2020). 

624See Rule 608(b)(1); 17 CFR 242.608(b)(1). 

However, a plan amendment can be put into effect 

upon filing with the Commission if it is designated 

as solely administrative, technical or ministerial. 

See Rule 608(b)(3). 

625See supra notes 530–532. 

626Rule 613(a)(5). 17 CFR 242.613(a)(5). 

627The CAT NMS Plan defines a ‘‘Material 

Amendment’’ as an amendment to the Technical 

Specifications that ‘‘would require a Participant or 

an Industry Member to engage in significant 

changes to the coding necessary to submit 

information to the Central Repository pursuant to 

this Agreement or if it is required to safeguard the 

security or confidentiality of the CAT Data.’’ See 

CAT NMS Plan, supra note 2, at Section 6.9(c). 

appropriate in that it will help the 

Commission, Industry Members and 

others evaluate CAT costs for purposes 

of commenting on CAT fees when they 

are proposed under Section 19(b) of the 

Exchange Act.607 This additional detail 

should provide sufficient information 

about the budget for the Commission to 

determine whether such proposed fees 

are reasonable, and obviate the need for 

a separate Commission approval of the 

CAT budget, as suggested by 

commenters.608 Additionally, the 

Commission understands that 

technology costs account for more than 

90% of the CAT budget 609 and thus 

believes that it is appropriate for the 

CAT NMS Plan to require the 

Participants to separate such costs into 

costs for cloud hosting services, 

operating fees, CAIS operating fees, 

change request fees and capitalized 

developed technology costs.610

One commenter requested further 

information to be provided on 

technology costs.611 The Participants 

would be required to describe each line 

item (including such technology costs) 

in the fee filings for Industry Member 

CAT Fees and the Historical CAT 

Assessment, including the reasons for 

changes in each line item from the prior 

CAT fee filing, and that this information 

would be provided with sufficient detail 

to demonstrate the budget or Historical 

CAT Costs (as applicable) is reasonable 

and appropriate.612 Because the 

Participants are also assessed CAT fees, 

they have at least some incentive similar 

to that of the Industry Members to keep 

costs down. As discussed above, the 

Commission believes that this incentive 

still exists even if the Participants passthrough to Industry Members some or 

most of the costs of the CAT, because 

any effort to pass on costs would require 

Participants to submit filings under the 

Section 19(b)(2) rule filing process. 

Moreover, to the extent the Industry 

Members have concerns about the 

amounts allocated for each category in 

a particular budget, those concerns can 

be raised when the fee filings are 

submitted for Prospective CAT fees. The 

Section 19(b)(2) rule filing process 

provides an opportunity for public 

comments and will allow commenters 

to raise concerns if they believe fees, 

including CAT Fees, are not reasonable 

and equitably allocated, would result in 

unfair discrimination, or would impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Exchange Act. 

While a commenter stated that the 

Commission is a conflicted party due to 

its use of the CAT and its responsibility 

to review CAT fee filings,613 the 

Commission is not a party to the 

Plan.614 Moreover, as regulator of the 

Participants, the Commission oversees 

and enforces compliance with the Plan, 

as well as consistency of any fees with 

statutory and regulatory standards.615

Additionally, one commenter 

recommended the inclusion of the 

Commission’s line item costs associated 

with its usage and design of the CAT in 

the budget.616 In response,617 CAT LLC 

responded that, because all costs related 

to CAT are a result of the Commission’s 

adoption of Rule 613 and the total costs 

are reflected in the budget, it would be 

impractical to break out Commissionspecific costs and would not be useful 

as a practical matter.618 The 

Commission agrees that it would be 

impractical to add a Commissionspecific line item in the budget, in part 

because it would be difficult to separate 

costs associated with Commission use of 

the CAT system from costs associated 

with Participant use of the CAT 

system.619 Moreover, the 

implementation of the CAT—while 

mandated by the Commission through 

Rule 613—has been managed by the 

Participants and the Plan Processor; the 

Commission does not believe that any 

changes to its design have been made 

that are inconsistent with the CAT NMS 

Plan as approved in 2016, such that the 

inclusion of a line item in the budget 

attributing certain design costs to the 

Commission would be inaccurate and 

misleading.620

The Commission acknowledges the 

enhancements a commenter suggested 

to reduce CAT operating costs by 

modifying the technical specifications 

(e.g., by moving certain timelines to T+2 

from T+1) and streamlining the 

reporting submission process (e.g., 

implementing further data 

validation),621 but such suggestions are 

better addressed in the context of a 

separate plan amendment. The 

commenter also suggested that the CAT 

Operating Committee and the 

Commission stop making any changes to 

the CAT and noted that there are several 

changes that are currently subject to 

exemptive relief that are slated for 

development.622 The Commission 

disagrees that the changes cited by the 

commenter are new CAT NMS Plan 

requirements; indeed the relevant 

Commission orders granting exemptive 

relief discuss the various requirements 

under the CAT NMS Plan that form the 

basis of the relief granted.623

Furthermore, any amendments to the 

requirements in the CAT NMS Plan 

must be filed with the Commission and 

published for notice and comment and 

generally shall not become effective 

unless approved by the Commission.624

Regarding the suggested enhancements 

to improve CAT transparency,625 the 

CAT NMS Plan and Rules 608 and 613 

of Regulation NMS provide for 

sufficient advance notice of material 

changes to the CAT system and related 

costs. As discussed above, changes to 

the CAT NMS Plan must be filed with 

the Commission as an NMS plan 

amendment pursuant to Rule 608 of 

Regulation NMS and therefore be 

subject to notice and comment, and the 

Commission shall consider, in 

determining to approve the amendment, 

the impact of the amendment on 

efficiency, competition and capital 

formation.626 Additionally, Section 6.9 

of the CAT NMS Plan requires a 

Supermajority Vote of the CAT 

Operating Committee in order to make 

Material Amendments 627 to the 

Technical Specifications. Section 6.9, 

however, does not provide unfettered 

discretion to the CAT Operating 


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628See Rule 608(b)(1). 17 CFR 242.608(b)(1). 

629See CAT LLC May 2023 Response Letter at 10– 

11. 

630See Notice, supra note 7, 88 FR at 17114. 

631See infra Section III.A.5.c. (Reserve). 

632See id. 

633See proposed Section 11.1(a). 

634Proposed Section 11.3(a)(i)(C). 

635One commenter complained that Participants 

were not providing the public with an opportunity 

to review the budget until after it was finalized. See 

SIFMA May 2023 Letter at 8–10. As CAT LLC 

explained, this appears to be based on a 

misunderstanding, as CAT LLC provides the annual 

budget and quarterly updates to the public. See 

CAT LLC May 2023 Response Letter at 11. 

636Proposed Section 11.1(a)(i). 

637Proposed Section 11.1(a)(ii). 

638Specifically, proposed Section 11.1(a)(ii) of 

the CAT NMS Plan would state that ‘‘[f]or the 

avoidance of doubt, the calculation of the amount 

of the reserve would exclude the amount of the 

reserve from the budget.’’ 

639 Id. 

640 Id. 

641See SIFMA January 2023 Letter at 6, n.15. See 

also Citadel July Letter at 26 (objecting to the 

requirement that Industry Members ‘‘fund an 

additional 25% reserve over budgeted amounts 

each year.’’). 

642See SIFMA January 2023 Letter at 6, n.15. 643See Notice, supra note 6, 88 FR at 17090. 644See CAT NMS Plan, supra note 2, at Section 

11.2(f). 645 Id. at Section 11.1(b). 

646See Notice, supra note 7, 88 FR at 17090. 

647 Id. 

648 Id. at 17091. 

649 Id. 

Committee to make changes to the CAT 

system; any amendments to the CAT 

Technical Specifications must be 

consistent with the CAT NMS Plan. If 

the CAT Operating Committee or the 

Commission wish to impose additional 

requirements that are not contemplated 

by the CAT NMS Plan, such 

requirements must be proposed through 

an amendment to the CAT NMS Plan, 

filed under Rule 608 of Regulation 

NMS, which must be published for 

notice and comment.628 The 

Commission agrees with the commenter 

that all CAT operating budgets should 

remain published on the CAT NMS Plan 

website, as they have been since 2022, 

and understands that CAT LLC will 

continue to do so in the future.629

Therefore, the Commission does not 

believe it is necessary to add an explicit 

requirement to this effect. 

The use of budgeted CAT costs is 

appropriate to determine the Fee Rate 

because it ties the Fee Rate to the costs 

that the CAT will likely incur during the 

relevant period which are also the 

Prospective CAT Costs that will need to 

be apportioned among the Participants 

and CAT Executing Brokers.630 Should 

the use of budgeted costs result in a 

budget surplus, that surplus would 

translate to lower fees in the coming 

year because there would be a lower 

requirement for reserves.631 Also, using 

budgeted costs to determine the Fee 

Rate facilitates financial stability, 

allowing CAT LLC to collect fees before 

bills become payable.632

The requirements that the Operating 

Committee approve a ‘‘reasonable’’ 

operating budget for CAT LLC,633 that 

fees, costs and expenses be ‘‘reasonable’’ 

and that they be ‘‘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’’ 634 is appropriate in the 

public interest.635 The existing CAT 

NMS Plan did not include such 

language, potentially providing the 

Participants full discretion to pass along 

to Industry Members costs that are not 

reasonable. Such costs could have 

included costs that were incurred due to 

Participant mismanagement, costs that 

were inflated or costs that should 

reasonably be allocated to only the 

Participants. Requiring these costs to be 

reasonable and reasonably budgeted 

imposes discipline on CAT spending, 

and the Commission, Industry Members 

and others will be able to review budget 

information during the rule filing 

process under Section 19(b) of the 

Exchange Act. 

c. Reserve 

CAT LLC proposed to add a 

requirement to Section 11.1(a)(i) of the 

CAT NMS Plan that the budget shall 

include ‘‘a reserve and such other cost 

categories as reasonably determined by 

the Operating Committee to be included 

in the budget.’’ 636 CAT LLC also 

proposed to add paragraph (ii) to 

Section 11.1(a) of the CAT NMS Plan to 

state that ‘‘[f]or 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.’’ 637 Moreover, CAT LLC would 

calculate the reserve based on the 

amount of the budget other than the 

reserve.638 In addition, proposed 

subparagraph (ii) of Section 11.1(a) of 

the CAT NMS Plan would state that 

‘‘[t]o the extent collected CAT fees 

exceed CAT costs, including the reserve 

of 25% of the annual budget, such 

surplus will be used to offset future 

fees.’’ 639 Proposed Section 11.1(a)(ii) of 

the CAT NMS Plan provides that ‘‘[f]or 

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).’’ 640

One commenter stated that the 

proposed reserve of not more than 25% 

of the CAT budget is excessive.641 The 

commenter noted that the support 

provided for the proposed change was 

the Participants’ difficulty in forecasting 

CAT costs, which the commenter stated 

demonstrates a need for an independent 

cost review mechanism.642

The Proposed Amendment providing 

that the annual operating budget 

include a reserve of not more than 25% 

of the annual budget is reasonable.643

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.644 Funding for the CAT, 

as noted in Section 11.1(b), is the 

responsibility of the Participants and 

the industry.645 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. CAT LLC 

explained that the proposed reserve 

amount of not more than 25% of the 

annual budget is based on a comparison 

of actual CAT costs and budgeted costs 

from 2020 through the first nine months 

of 2022 that demonstrated that actual 

CAT costs exceeded budgeted costs by 

20% during this time period.646 CAT 

LLC also noted difficulty in predicting 

variable CAT costs in concluding to cap 

the reserve at 25%.647 Additionally, 

CAT LLC explained that CAT fees will 

be collected approximately three 

months after trading activity on which 

a CAT fee is based, or 25% of the 

year.648 CAT LLC stated that the reserve 

would be available to address funding 

needs related to this three-month 

delay.649 No commenter stated that they 

thought anything higher than a 25% 

reserve was necessary and no 

commenter provided an alternative 

solution to make sure that CAT remains 

funded and able to pay its bills. The 

Commission therefore believes that a 

reserve of no more than 25% is 

reasonable based on the factors listed by 

CAT LLC. 

In addition, the Commission 

recognizes that if CAT fees exceed CAT 

costs, including the reserve, the surplus 

will be used to offset future fees, and 

that a reserve will only be included in 

the annual budget on which the fees are 

based if CAT LLC does not have a 


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650 Id. See also proposed Section 11.1(a)(ii). 

651The CAT NMS Plan requires that a surplus of 

the Company’s revenues over its expenses be 

treated as an operational reserve to offset future 

fees. See CAT NMS Plan, supra note 2, at Section 

11.1(c). 

652See Notice, supra note 7, 88 FR at 17091. See 

also proposed Section 11.1(a)(ii). 

653See Notice, supra note 7, 88 FR at 17090. See 

also proposed Section 11.1(a)(ii). 

654One commenter objected to CAT LLC’s 

reference to the financial viability of the CAT as an 

attempt to ‘‘coerce the Commission into 

prematurely opining on a funding proposal that 

does not meet basic Exchange Act requirements.’’ 

See Citadel August Letter at 1. For the reasons 

explained in this order, the Funding Model meets 

the applicable standard for approval. 

655See CAT NMS Plan, supra note 2, at Section 

11.1(b), 11.3(a) and (b). 

656CAT LLC stated that it expected the fee filings 

required to be made by the Participants pursuant to 

Section 19(b) of the Exchange Act with regard to 

CAT Fees to be filed pursuant to Section 19(b)(3)(A) 

of the Exchange Act and Rule 19b–4(f)(2) 

thereunder. CAT LLC further stated that in 

accordance with Section 19(b)(3)(A) of the 

Exchange Act and Rule 19b–4(f)(2) thereunder, such 

fee filings would be effective upon filing. See 

Notice, supra note 7, 88 FR at 17095, n.38. Pursuant 

to Section 19(b)(3)(A) and Rule 19b–4(f)(2), a 

proposed rule change can take effect upon filing 

with the Commission if designated by the SRO as 

establishing or changing a due, fee, or other charge 

imposed by the SRO. 15 U.S.C. 78s(b), 15 U.S.C. 

78s(b)(3)(A), 17 CFR 240.19b–4(f)(2). 

657CAT LLC stated that it intends to include any 

other categories as reasonably determined by the 

Operation Committee. Accordingly, this provision 

refers to ‘‘such other categories as reasonably 

determined by the Operating Committee to be 

included in the budget.’’ Notice, supra note 7, 88 

FR at 17095, n.39. 

658As 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. See Notice, 

supra note 7, 88 FR at 17095, n.40. 

659See proposed Section 11.3(a)(iii)(B). 

660See CAT NMS Plan, supra note 2, at Section 

11.6; see also supra note 18. 

661 15 U.S.C. 78s(b). 

662See proposed Section 11.3(a)(iii)(C); see also 

CAT NMS Plan, supra note 2, at Section 

11.6(a)(i)(D). 

663See supra note 521. 

664 Id. 

665See proposed Section 11.3(a)(i)(A)(I) and (II). 

666See proposed Section 11.3(a)(iii)(B). 

667 Id. 

668See CAT NMS Plan, supra note 2, at Section 

11.6. 

669See Citadel July Letter at 24. 

sufficient reserve, which would be 

limited to 25% of the annual budget.650

The Commission also recognizes that 

the Company must operate on a breakeven basis and that any surpluses would 

be treated as an operational reserve to 

offset future fees and not be distributed 

to Participants as profits.651 The 

Commission further recognizes that 

proposed Section 11.1(a)(ii) states that 

CAT LLC will only include an amount 

for the reserve in the annual budget if 

the Company does not have a sufficient 

reserve; therefore, the Participants 

would not be collecting additional fees 

if CAT LLC already has a reserve of 25% 

of the annual budget.652 Furthermore, 

the reserve would be calculated by CAT 

LLC based on the amount of the budget 

other than the reserve because the 

reserve is meant to fund CAT LLC to 

pay its bills if necessary.653 These 

requirements should obviate the need 

for a refund mechanism. 

To date, CAT has been solely funded 

by the Participants.654 The CAT NMS 

Plan, however, requires funding for the 

CAT come from both Participants and 

Industry Members.655 It is the 

Commission’s view that establishing a 

reserve is a reasonable way to ensure 

that future funding is secured from all 

intended parties, rather than relying on 

Participants alone. 

d. Fee Filings Under Section 19(b) of the 

Exchange Act for Industry Member CAT 

Fees 

CAT LLC described the information 

that Participants would be required to 

include in their fee filings to be made 

pursuant to Section 19(b) of the 

Exchange Act and Rule 19b–4 

thereunder for Industry Member CAT 

Fees in proposed paragraph (B) of 

proposed Section 11.3(a)(iii) of the CAT 

NMS Plan.656 Specifically, such filings 

would be required to include with 

regard to the CAT Fee: (A) the Fee Rate; 

(B) 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; 657

(C) a discussion of how the budget is 

reconciled to the collected fees; and (D) 

the projected total executed equivalent 

share volume of all transactions in 

Eligible Securities for the year (or 

remainder of the year, as applicable), 

and a description of the calculation of 

the projection. This detail would 

describe how the Fee Rate is calculated 

and explain how the budget used in the 

calculation is reconciled to the collected 

fees.658 In addition, CAT LLC proposed 

to state that the budgeted CAT costs 

described in the fee filings must provide 

sufficient detail to demonstrate that the 

CAT budget used in calculating the CAT 

Fees is reasonable and appropriate.659

The collection of CAT Fees from 

Industry Members is subject to Section 

11.6 of the CAT NMS Plan regarding the 

Financial Accountability Milestones.660

Accordingly, CAT LLC proposed to state 

that Participants will not make fee 

filings pursuant to Section 19(b) of the 

Exchange Act 661 regarding CAT Fees 

until the Financial Accountability 

Milestone related to Period 4 described 

in Section 11.6 of the CAT NMS Plan 

has been satisfied.662

As discussed above, one commenter 

stated that the budget line-item 

categories, which would be included in 

the Section 19(b) fee filings, are too high 

level.663 The commenter urged the 

inclusion of much greater detail and 

specificity on the budget spending 

choices, especially in technology, to 

allow Industry Members and the public 

to understand and evaluate CAT 

spending decisions.664

The proposed process for 

implementing CAT Fees related to 

Prospective CAT Costs for Industry 

Members is reasonable. Under the 

Executed Share Model, the Participants 

would be required to submit fee filings 

pursuant to Section 19(b) of the 

Exchange Act to change the Fee Rates 

for Industry Members twice a year, once 

at the beginning and once during the 

year.665 It is appropriate to accompany 

each Fee Rate change with a Section 

19(b) fee filing because it would provide 

notice to Industry Members and the 

public of the Fee Rate change and 

permit such entities to provide 

comment on the change. 

In addition to the budget information 

already provided by the Participants on 

the CAT website, the detail provided in 

the fee filings for the budget would 

provide transparency into the budget as 

it would describe the line items of the 

budget and any changes to the budget 

and allow the public the ability to 

comment on the budget.666 The fee 

filings must discuss how the budget is 

reconciled to collected fees, which 

would provide the public an 

opportunity to comment on the 

effectiveness of the reconciliation.667

The Executed Share Model establishes 

the framework for Industry Member 

CAT fees; details of the Budgeted CAT 

Costs will be provided in the Section 

19(b) fee filings submitted by the 

Participants. 

One commenter objected to how the 

Proposed Amendment addressed the 

Financial Accountability Amendments 

Period 4 668 expenses.669 The 

commenter stated that if full 

implementation does not occur by 

September 27, 2023, the Operating 

Committee cannot recover from Industry 


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670 Id. 

671 Id. at 24–25. The commenter further explained 

that the Commission has reserved judgment on 

whether the terms of the Financial Accountability 

Amendments in Section 11.6 of the CAT NMS Plan 

would be enforced. 

672 Id. at 25. 

673 Id. 

674See Citadel July Letter at 25. 

675 Id. 

676 Id. 

677 Id. at 26. 

678 Id. at 24. 

679See CAT LLC July 2023 Response Letter at 30. 

680 Id. 

681See proposed Section 11.3(a)(iii)(C). 

682See CAT NMS Plan, supra note 2, at Section 

11.6. 

683See infra note 807. 

684See proposed Section 11.3(a)(ii)(A). 685 Id. 686See proposed Section 11.3(a)(i)(A)(I) and (II); 

see also 15 U.S.C. 78s(b). 687See Notice, supra note 7, 88 FR at 17094. 

688Paragraph (a) of the Proposed Participant Fee 

Schedule. 

689See Notice, supra note 7, 88 FR at 17108–09. 

Members any expenses related to Period 

4.670 The commenter explained that the 

Proposed Amendment states that costs 

incurred during Period 4 may be 

allocated to Industry Members and that 

the Operating Committee had requested 

exemptive relief to extend the deadline 

for full implementation until August 31, 

2024, which would allow the 

Participants to recover all Period 4 

expenses from Industry Members.671

The commenter stated that the expenses 

related to Period 4 would likely total 

more than $400 million, and expressed 

the belief that this amount may be 

allocated in its entirety to Industry 

Members if the terms of the CAT NMS 

Plan are not enforced.672

The commenter stated that this issue 

is ‘‘highly relevant to the Commission’s 

analysis of the 2023 Funding 

Proposal’’ 673 and recommended three 

alternatives for the Commission to 

address the matter: (1) to state that 

relevant financial accountability 

provisions will be enforced as written 

and permit the Operating Committee to 

allocate Period 4 expenses only to the 

extent permitted by the CAT NMS Plan 

(reduced by 75%, and by 100% if full 

implementation does not occur by 

September 27, 2023); 674 (2) defer 

judgment and provide that Period 4 

expenses cannot be allocated to Industry 

Members; 675 or (3) defer judgment and 

permit the Operating Committee to 

allocate Period 4 expenses to Industry 

Members and analyze the potential 

impact of allocating all Period 4 costs to 

Industry Members on market efficiency, 

competition and capital formation.676

The commenter urged the Commission 

to conduct this analysis before waiting 

for a subsequent filing, stating that once 

the Commission approves an allocation 

methodology, ‘‘the CAT Operating 

Committee would simply apply that 

approved methodology to the costs 

incurred during a specific time 

period.’’ 677

In response to the commenter’s 

criticism that the Proposed Amendment 

does not adequately address the Period 

4 expenses,678 CAT LLC stated that it 

recognizes the applicability of the 

Financial Accountability Milestones on 

the collection of CAT Fees and 

Historical CAT Assessments.679 CAT 

LLC stated that the Participants will not 

file CAT fee filings until they believe 

any applicable Financial Accountability 

Milestone has been satisfied, and noted 

that the Commission has not made a 

determination regarding the 

Participants’ satisfaction of the 

Financial Accountability Milestones.680

As stated by the Participants, the 

Proposed Amendment acknowledges 

that the Participants are prohibited from 

submitting Exchange Act filings 

regarding Prospective CAT Fees until 

the Financial Accountability Milestone 

related to Period 4 described in Section 

11.6 of the CAT NMS Plan has been 

satisfied.681 This is a reasonable 

approach for addressing how fee filings 

will be handled in conjunction with a 

determination of the Participants’ 

compliance with the Financial 

Accountability Milestones. Under 

existing Section 11.6, the Participants 

will not be able to recover the full costs 

of the CAT for a period if the relevant 

Financial Accountability Milestone has 

not been satisfied.682 Because the 

amount the Participants cannot recover 

from Industry Members is not known 

until the Financial Accountability 

Milestone has been satisfied, it would 

not be appropriate for the Participants to 

require Industry Members to pay CAT 

costs in advance, as the amount of such 

costs could be reduced.683 The 

Commission acknowledges the concerns 

raised and suggestions offered by the 

commenter but the Commission is not 

making a finding on the satisfaction of 

the Period 4 Financial Accountability 

Milestone in this Order nor is such a 

finding required. This filing merely 

establishes the framework under which 

costs will be allocated, not the amount 

to be allocated. The Participants will not 

be able to submit filings to recover 

Prospective CAT Fees or Historical CAT 

Assessments to recover Period 4 

expenses until the Period 4 Milestone 

has been satisfied. When they do submit 

such filings, the question of compliance 

will impact how much can be recovered 

under the applicable framework; this 

model will then be used to determine 

how to allocate that amount. 

e. Participant CAT Fees for Prospective 

CAT Costs 

CAT LLC proposed to describe the 

Participant CAT Fees related to 

Prospective CAT Costs in proposed 

Section 11.3(a)(ii) of the CAT NMS Plan. 

Specifically, under proposed Section 

11.3(a)(ii)(A) of the CAT NMS Plan, 

each Participant that is a national 

securities exchange will be required to 

pay the CAT Fee for each transaction in 

Eligible Securities executed on the 

exchange in the prior month based on 

CAT Data. Each Participant that is a 

national securities association will be 

required to pay the CAT Fee for each 

transaction in Eligible Securities 

executed otherwise than on an exchange 

in the prior month based on CAT 

Data.684 The CAT Fee 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 determined pursuant to proposed 

Section 11.3(a)(i).685

CAT LLC also proposed Section 

11.3(a)(ii)(B) of the CAT NMS Plan to 

provide that Participants would only be 

required to pay CAT Fees when 

Industry Members are required to pay 

CAT Fees. CAT Fees charged to Industry 

Members become effective in 

accordance with the requirements of 

Section 19(b) of the Exchange Act.686 In 

contrast, 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.687 Specifically, to implement the 

Participant CAT fees, CAT LLC 

proposed to add the Proposed 

Participant Fee Schedule, entitled 

‘‘Consolidated Audit Trail Funding 

Fees,’’ to Appendix B of the CAT NMS 

Plan. Proposed Paragraph (a) stated that 

‘‘[e]ach Participant shall pay the CAT 

Fee set forth in Section 11.3(a) of the 

CAT NMS Plan to Consolidated Audit 

Trail, LLC in the manner prescribed by 

Consolidated Audit Trail, LLC on a 

monthly basis based on the Participant’s 

transactions in Eligible Securities in the 

prior month.’’ 688 Because each 

Participant would be required to pay a 

CAT Fee once a Fee Rate has been 

established by the Operating Committee, 

and because of the time and burden 

required, CAT LLC stated that it would 

not submit an amendment to the CAT 

NMS Plan every time the Fee Rate is 

established or adjusted.689

It is reasonable to require that each 

Participant pay a CAT Fee related to 


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690See proposed Section 11.3(a)(ii). 

691See CAT NMS Plan, supra note 2, at Section 

11.1(b), Section 11.3(a). 

692See Notice, supra note 7, 88 FR at 17104. 

693 Id. at 17108–09. 

694See proposed Section 11.3(a)(i)(A). See also 15 

U.S.C. 78s(b). 

695See proposed Section 11.3(a)(ii)(A) and (B). 

696See paragraph (a) of the Proposed Participant 

Fee Schedule. 

697See Notice, supra note 7, 88 FR at 17109. 

698See proposed Section 11.3(a)(ii)(A) and (B). 

699See Notice, supra note 7, 88 FR at 17086; see 

also proposed Section 11.3(b); supra notes 32–33 

and accompanying text (defining Historical CAT 

Assessments). 

700See proposed Section 11.3(b)(iii). See Notice, 

supra note 7, 88 FR at 17096, n.43; see also supra 

note 18 and CAT NMS Plan, supra note 2, at 

Section 11.6. 

701The Historical Recovery Period would be used 

to calculate the Historical Fee Rate for a Historical 

CAT Assessment. Proposed Section 11.3(b)(i)(D) of 

the CAT NMS Plan provides the Operating 

Committee with the discretion to reasonably 

establish the length of the Historical Recovery 

Period as long as no such period is less than 24 

months and more than five years. See infra Section 

III.A.6.b. 

702The Historical Fee Rate is the fee rate used to 

calculate the Historical CAT Assessment. See infra 

Section III.A.6.c. 

703See proposed Section 11.3(b)(iii)(A). 

704The Excluded Costs would be $48,874,937 in 

CAT costs incurred from November 15, 2017 

through November 15, 2018, and $14,749,362 in 

costs related to the termination of the initial Plan 

Processor. See CAT LLC July 2023 Response Letter 

at 19. 

705Proposed Section 11.3(b)(i)(C). 

706See Notice, supra note 7, 88 FR at 17111. 

According to the Proposed Amendment, ‘‘[e]ach 

Historical CAT Assessment will seek to recover 

from CAT Executing Brokers two-thirds of 

Historical CAT Costs incurred during the period 

covered by the Historical CAT Assessment.’’ 

Proposed Section 11.3(b)(i)(C). The Historical CAT 

Costs would be Past CAT Costs minus the Excluded 

Costs. Id. 

707See SIFMA June 2023 Letter at 4; SIFMA 

January 2023 Letter at 7; SIFMA October 2022 

Letter at 5; Citadel July Letter at 24, 32; MMI July 

Letter at 4; Virtu Letter at 4. 

708SIFMA October 2022 Letter at 5. 

709See SIFMA January 2023 Letter at 7. See also 

FIA Letter at 4 (stating that it is ‘‘patently unfair’’ 

to allocate all historical costs to current Industry 

Prospective CAT Costs for each 

transaction in the prior month based on 

CAT Data.690 The CAT NMS Plan 

requires the Participants to contribute to 

the funding of the CAT.691 Additionally, 

as CAT LLC explained, the Executed 

Share Model recognizes the Participants 

(as market regulators) as one of the three 

parties who have primary roles in a 

transaction,692 so it is appropriate for a 

transaction-based funding model to 

assess a CAT Fee upon the Participants. 

The Commission also believes it is 

reasonable that proposed Section 

11.3(a)(ii)(B) provides that the 

Participants would be required to pay 

CAT Fees only when Industry Members 

are required to pay CAT Fees. The CAT 

Fees charged to Participants would be 

implemented through an approval of the 

CAT Fees by the Operating Committee 

and not through a plan amendment 

submitted each time the Fee Rate 

changes,693 while CAT Fees charged to 

Industry Members may only become 

effective in accordance with the 

requirements of Section 19(b) of the 

Exchange Act.694 However, both 

Participants and Industry Members 

would be subject to the same Fee 

Rate 695 so it is appropriate to provide 

that Participants would be required to 

pay the Participant CAT Fee once CAT 

Fees based on the Fee Rate are effective 

for Industry Members. 

The Proposed Participant Fee 

Schedule is reasonable. As the Proposed 

Participant Fee Schedule requires each 

Participant to pay the CAT Fee detailed 

in Section 11.3(a) of the CAT NMS Plan 

on a monthly basis, based on the 

Participant’s transactions in Eligible 

Securities in the prior month, in the 

manner prescribed by CAT LLC,696 the 

proposed fee schedule is appropriate 

because it imposes the Executed Share 

Model’s Participant CAT Fee obligation 

on the Participants by specifically 

requiring the Participants to pay a CAT 

Fee in accordance with the Executed 

Share Model. The requirement in the 

Proposed Participant Fee Schedule 

clearly sets forth how the Participants 

will calculate their monthly CAT Fee 

obligation, and therefore does not 

believe that it is necessary for the 

Participants to submit an amendment to 

the CAT NMS Plan each time the Fee 

Rate changes; the formula for 

calculating fees will be constant 

although the Fee Rate that would be 

applied, which is objectively 

determined, will change only following 

a Participant fee filing under section 

19(b) of the Exchange Act.697 This 

approach is reasonable in this 

circumstance because the CAT NMS 

Plan sets forth the Executed Share 

Model, the Participants are required to 

pay CAT Fees pursuant to the CAT NMS 

Plan and the same Fee Rate that would 

apply to Industry Members would apply 

to Participants.698

6. Historical CAT Assessment 

a. Calculation of Historical CAT 

Assessment 

Under the Executed Share Model, Past 

CAT Costs will be recovered from 

CEBBs and CEBSs through Historical 

CAT Assessments.699 Pursuant to 

proposed Section 11.3(b) of the CAT 

NMS Plan the Operating Committee will 

establish one or more Historical CAT 

Assessments depending upon the timing 

of any approval of the Proposed 

Amendment and the completion of the 

Financial Accountability Milestones.700

In establishing a Historical CAT 

Assessment, the Operating Committee 

will determine a ‘‘Historical Recovery 

Period’’ 701 and calculate a ‘‘Historical 

Fee Rate’’ 702 for that Historical 

Recovery Period. Then, for each month 

in which a Historical CAT Assessment 

is in effect, each CEBB and each CEBS 

will pay a fee (the Historical CAT 

Assessment) for each transaction in 

Eligible Securities executed by the 

CEBB or CEBS from the prior month as 

set forth in CAT Data, where the 

Historical CAT Assessment for each 

transaction will be calculated by 

multiplying the number of executed 

equivalent shares in the transaction by 

one-third and by the Historical Fee Rate 

reasonably determined pursuant to 

proposed Section 11.3(b)(i).703

The actual amount of Past CAT Costs 

to be recovered through the Historical 

CAT Assessments would be reduced by 

an amount of ‘‘Excluded Costs.’’ 704 The 

resulting amount would be defined as 

‘‘Historical CAT Costs’’ in proposed 

Section 11.3(b)(i)(C) of the CAT NMS 

Plan. Proposed Section 11.3(b)(i)(C) 

states that ‘‘[t]he Operating Committee 

will reasonably determine the Historical 

CAT Costs sought to be recovered by 

each Historical CAT Assessment, where 

the Historical CAT Costs will be Past 

CAT Costs minus Past CAT Costs 

reasonably excluded from Historical 

CAT Costs by the Operating 

Committee.’’ 705 The Historical CAT 

Costs would not include an amount of 

‘‘Excluded Costs’’ so that Industry 

Members would not be assessed a 

Historical CAT Assessment to recover 

such Excluded Costs.706

Certain commenters objected to the 

method of calculating the Historical 

CAT Assessment using current 

transaction activity.707 One commenter 

disagreed with the proposed method 

‘‘due to difficulty of using current 

volumes and trading activity by 

individual Industry Members as a 

mechanism for assessing costs in the 

past where the trading volumes and 

individual Industry Member trading 

activity likely were different.’’ 708 The 

commenter also stated that the proposed 

assessment of Past CAT Costs on current 

Industry Members based on their 

current trading activity is not fair or 

reasonable because new Industry 

Members would be assessed a share of 

Past CAT Costs even if they were not in 

operation when those costs were 

incurred, and that such costs would be 

attributable to Industry Members that 

are no longer in business.709 The 


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Members based on their current market activity 

because current ‘‘Industry Members had no control 

over the stops and starts incurred in the 

development of CAT.’’). 

710SIFMA June 2023 Letter at 4. This statement 

was echoed by another commenter. See Virtu Letter 

at 4. 

711SIFMA June 2023 Letter at 4. The commenter 

also stated that the assessment of ‘‘retroactive 

liability for monies spent that private parties had no 

control over’’ for public purposes would violate the 

Fifth Amendment Takings Clause. See infra Section 

III.9.d. 

712See Citadel July Letter at 24. 

713 Id. at 32. 

714See MMI July Letter at 4. 

715See SIFMA October 2022 Letter at 5. 

716SIFMA January 2023 Letter at 7. 

717 Id. 718 Id. 719See SIFMA January 2023 Letter at 6–7; SIFMA 

October 2022 Letter at 7; SIFMA June 2022 Letter 

at 7; Citadel July Letter at 3, 23, 24, 31, 32; FIA 

Letter at 4; MMI July Letter at 4 (suggesting 

accountability for historic costs). 

720See SIFMA October 2022 Letter at 7. 

721See SIFMA June 2022 Letter at 7; SIFMA 

January 2023 Letter at 6–7; FIA Letter at 4. 

722See SIFMA June 2022 Letter at 7. 

723See Citadel July Letter at 31. 

724 Id. at 23. See also Citadel August Letter at 6– 

7. 

725See Citadel July Letter at 23. See also id. at 

23, n.100; id. at 8 (stating that ‘‘missteps’’ by the 

Operating Committee related to the hiring of the 

initial plan processor and the hiring of FINRA CAT 

to replace the initial plan processor resulted in 

‘‘wasted expenditures’’ of more than $100 million). 

See also Citadel August Letter at 7. 

726See Citadel July Letter at 23. See also Citadel 

August Letter at 7. 

727See Citadel July Letter at 24. See also Citadel 

August Letter at 7. 

728See Citadel August Letter at 7. 

729 Id. 

730 Id. 

731See Citadel July Letter at 31. The commenter 

noted that in 2016, the Commission estimated that 

broker-dealers would incur 90% of total CATrelated costs, even if not allocated any costs for 

building and operating the CAT. The commenter 

stated that updates to these estimates would show 

that this figure would underestimate their cost 

burdens. See id. 

732 Id. at 3, 31, 32. 

commenter added that the Proposed 

Amendment has not explained how 

allocating ‘‘approximately $350 million 

in historical costs . . . to a small group 

of executing broker firms based on 

current market volumes’’ is consistent 

with the Exchange Act or how it would 

impact liquidity and competition.710

The commenter stated that since the 

proposed allocation would be based on 

current market share and unrelated to 

the firms or activity that contributed to 

historical costs, there would be little 

ability for executing brokers to pass on 

such costs.711 Another commenter 

stated that the Proposed Amendment 

lacked a clear mechanism for Industry 

Members to pass-on historical costs to 

other market participants.712 The 

commenter stated, ‘‘[i]t appears 

challenging for the CAT Operating 

Committee to allocate historical costs in 

a way that is directly tied to historical 

activity, which makes it more difficult 

for Industry Members to pass-on these 

costs to other market participants.’’ 713

Another commenter suggested a ‘‘review 

of current market percentage share 

dictating cost structure—e.g., industry 

fluctuations—how current market share 

[sic] not reflective of past/future market 

shares- need for adjustments.’’ 714

One commenter recommended a 

reevaluation of the use of transaction 

fees to assess Past CAT Costs,715 and 

suggested an alternative approach in 

which Past CAT Costs would be 

assigned to Industry Members ‘‘based on 

the lesser of (i) the CAT Fees that would 

be assessed on an Industry Member 

under the Participants’ proposed 

approach of using current trading 

activity or (ii) the CAT Fees that would 

be assessed on such member based on 

their prior trading activity in the years 

since 2016 when the CAT was being 

built and then operationalized . . .’’ 716

The commenter stated that the share of 

Past CAT Costs belonging to Industry 

Members that are no longer in business 

could be calculated using this approach 

and then divided equally among the 

current Industry Members, while 

Industry Members that entered into 

business after certain Past CAT Costs 

were incurred would be assessed Past 

CAT Costs starting in the year after 

which they started operating based on 

the above approach.717 The commenter 

acknowledged that, while this approach 

would require more effort by the 

Participants, it would be ‘‘significantly 

closer to the fair and reasonable 

standard in the Exchange Act than the 

approach set forth by the Participants in 

the Executed Share Model.’’ 718

Additionally, commenters objected to 

the allocation of Past CAT Costs to 

Industry Members.719 One commenter 

stated that the Participants have failed 

to justify the allocation of Past CAT 

Costs to Industry Members during the 

period when only Participants were 

reporting to the CAT.720 Certain 

commenters stated that Industry 

Members should not be assessed any 

fees related to the decision to employ 

Thesys Technologies, LLC as the Plan 

Processor or legal or consulting fees 

incurred by the Participants in the 

creation of the CAT NMS Plan.721 One 

commenter stated that the Proposed 

Amendment fails to provide how much 

of the allocation to Industry Members is 

related to Thesys Technologies, LLC, 

and, therefore, the Participants have not 

demonstrated how the Executed Share 

Model is consistent with the Exchange 

Act.722

Another commenter stated that it 

would be inappropriate to allocate any 

costs related to Thesys Technologies, 

LLC’s role as the plan processor, 

including the costs of transitioning to a 

new plan processor, or the Operating 

Committee’s costs of litigation against 

the Commission.723 The commenter 

expressed concern about a lack of 

transparency into Historical CAT Costs 

and the size of such costs, stating that 

the historical costs are excessive and 

inconsistent with the CAT NMS Plan.724

The commenter stated that a lack of 

transparency into historical costs raises 

questions about whether Industry 

Members would be allocated costs for 

the period when Thesys Technologies, 

LLC was the plan processor, noting that 

the Proposed Amendment only 

intended to exclude $64 million in costs 

related to the ‘‘failed engagement of 

Thesys,’’ when the costs were much 

higher; 725 whether Industry Members 

would be allocated costs related to 

litigation between the Operating 

Committee and the Commission; 726 and 

whether Industry Members would be 

allocated costs related to repeated filing 

of prior funding models.727 The 

commenter stated that, without knowing 

the total amount of Historical CAT 

Costs, or basic information about such 

costs, the Commission cannot determine 

whether Historical CAT Costs are 

reasonable and cannot assess the impact 

of the proposed allocation on market 

liquidity, efficiency and competition.728

For example, the commenter stated that 

the CAT Operating Committee has not 

assessed ‘‘whether trading activity may 

decline or bid-offer spreads may 

widen.’’ 729 The commenter stated that 

the CAT Operating Committee 

‘‘recklessly argues’’ that the proposed 

allocation of Historical CAT Costs is not 

concerning due to the existence of 

higher transaction-based fees.730 In 

addition, the commenter stated that 

Industry Members have borne nearly all 

of the total CAT-related costs due to ‘‘a 

near-constant barrage’’ of changes to 

technical specifications.731 The 

commenter recommended not allocating 

any historical costs to Industry 

Members.732

One commenter stated that Industry 

Members were not subject to CAT 

obligations before the CAT NMS Plan’s 

approval, had no input into the 

selection of the service providers, and 

that ‘‘it is difficult to envision how the 

Participants could demonstrate that 

such an allocation provides for the 

equitable allocation of reasonable fees 

due to the fact that the CAT NMS Plan 


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733See SIFMA June 2022 Letter at 7. 

734See SIFMA October 2022 Letter at 5. 

735 Id. See also SIFMA October 2022 Letter at 2 

(‘‘[w]e also reiterate our call for the Participants to 

work with SIFMA and the industry in a 

collaborative manner to establish a viable CAT 

funding model.’’). 

736See SIFMA May 2023 Letter at 8; SIFMA 

October 2022 Letter at 4–5; supra notes 708–713 

and accompanying text. 

737See CAT LLC May 2023 Response Letter at 9. 

738 Id. 

739 Id. 

740 Id. 

741See SIFMA June 2023 Letter at 2. 

742See CAT LLC July 2023 Response Letter at 16. 

743 Id. 

744See SIFMA June 2023 Letter at 4. See also 

Virtu Letter at 4. 

745See CAT LLC July 2023 Response Letter at 15. 

746 Id. 

747 Id. 

748 Id. 

749See CAT LLC July 2023 Response Letter at 17. 

CAT LLC also provided a comparison of Historical 

CAT Costs to Prospective CAT Costs, demonstrating 

that the $233 million 2023 CAT budget is 

approximately 45% of the $518 million in 

Historical CAT Costs (through 2022). Id. 

750See Citadel July Letter at 31. 

751See CAT LLC July 2023 Response Letter at 16. 

752 Id. 

753 Id. at 17. 

754 Id. at 18. 

755 Id. at 18–19. 

756See FIA Letter at 4; Citadel July Letter at 23, 

31. 

757See CAT LLC July 2023 Response Letter at 19. 

758 Id. 

759See proposed Section 11.3(a)(ii)(A) and 

(iii)(A). 

760See Notice, supra note 7, 88 FR at 17113. 

761CAT NMS Plan Approval Order, at 81 FR at 

84993. 

762See Notice, supra note 7, 88 FR at 17113. 

did not exist during the period prior to 

its approval.’’ 733

The commenter also stated that the 

Participants have not analyzed different 

alternatives to collecting Past CAT Costs 

and the costs associated with such 

alternatives or the costs associated with 

the proposed approach.734 The 

commenter urged collaboration between 

the Participants and Industry Members 

on the allocation of Past CAT Costs.735

With respect to one commenter’s 

criticisms of the calculation and 

assessment of the Historical CAT 

Assessment,736 CAT LLC stated that the 

commenter had a ‘‘persistent 

misunderstanding’’ of the Historical 

CAT Assessment, explaining that, 

contrary to the commenter’s assertions 

in its comment letters, the Historical 

CAT Assessment would be assessed 

based on current market activity, not 

past market activity.737 While the fee 

rate would be calculated based on 

Historical CAT Costs, the fee rate would 

be applied to current market 

transactions.738 CAT LLC stated that the 

process of assessing fees for the 

Historical CAT Assessment would be 

exactly the same as with CAT Fees 

related to Prospective CAT Costs, and 

would be passed through in the same 

manner if a CEBB or CEBS so 

chooses.739 CAT LLC also stated that it 

would provide CAT Executing Brokers 

with details of their CAT fees to 

facilitate this process.740

In response, the commenter stated 

that the CAT LLC Response Letter did 

not meaningfully address the concerns 

it raised about ‘‘the inability of firms 

defined as ‘executing brokers’ to transfer 

fees to those who may be more 

appropriate to bear certain historical 

CAT costs in the first place.’’ 741 CAT 

LLC reiterated that the Historical CAT 

Assessment would be assessed in the 

same manner as CAT Fees for 

Prospective CAT Costs, and could 

likewise be passed-through by the CEBB 

or CEBS,742 and that CAT LLC would 

provide the relevant data to help CAT 

Executing Brokers pass-through the 

fees.743

In response to a commenter that 

stated that a small group of brokerdealers would shoulder the Historical 

CAT Costs and asked whether allocating 

these costs to a small group of executing 

brokers based on current market volume 

is consistent with the Exchange Act,744

CAT LLC stated that ‘‘almost 700 of the 

1100 Industry Members would have an 

obligation to contribute to Historical 

CAT Costs. . . not just a few CAT 

Executing Brokers’’ 745 and since ‘‘the 

fees vary in accordance with the market 

activity of the CAT Executing Brokers, 

certain CAT Executing Brokers will 

have large bills for very significant 

market activity.’’ 746 CAT LLC also 

reiterated that the Section 11.2(b) of the 

CAT NMS Plan contemplates that 

Industry Members would contribute to 

funding the costs of the CAT and that 

CAT Executing Brokers may pass on 

their CAT fees so they would not have 

any obligation to pay CAT fees.747 CAT 

LLC also clarified that Industry 

Members would be allocated Historical 

CAT Costs over a period of time that 

would be no less than 24 months and no 

more than five years, not in a single 

lump sum,748 and stated that ‘‘it would 

potentially be appropriate to spread the 

Historical CAT Costs over a time period 

of a little less than three years, a time 

period which is within the two to five 

year range for the Historical Recovery 

Period.’’ 749

In response to the commenter that 

stated that Industry Members are 

bearing almost all of the CAT-related 

costs,750 CAT LLC stated that the 

commenter was conflating the Industry 

Members’ internal costs to comply with 

CAT reporting requirements with the 

direct costs of the CAT.751 CAT LLC 

stated that the Proposed Amendment is 

intended to address the funding of the 

direct costs of the CAT and not 

Participants and Industry Members’ 

compliance costs.752

CAT LLC provided a comparison of 

Historical CAT Costs to Prospective 

CAT Costs, demonstrating that the $233 

million 2023 CAT budget is 

approximately 45% of the $518 million 

in Historical CAT Costs (through 

2022).753 CAT LLC stated that it expects 

to propose a fee rate for the Historical 

CAT Assessment that would be similar 

to or smaller than other transactionbased fees, and provided examples in 

which CEBBs and CEBSs would be 

assessed less than 1/1000 of a penny per 

executed equivalent share.754 CAT LLC 

noted that broker-dealers are currently 

charged other transaction-based fees 

that are higher than the proposed CAT 

fees.755

In response to commenters that 

objected to the allocation to Industry 

Members of Historical CAT Costs 

related to the initial Plan Processor,756

CAT LLC stated that the Historical CAT 

Costs to be allocated to Industry 

Members would not include two 

categories of costs related to the initial 

Plan Processor: $48,874,937 in CAT 

costs incurred from November 15, 2017 

through November 15, 2018, and 

$14,749,362 in costs related to the 

termination of the initial Plan 

Processor.757 CAT LLC stated that the 

Participants would remain responsible 

for these costs.758

In the Commission’s view, the 

proposed recovery of Past CAT Costs via 

the Historical CAT Assessment is 

reasonable, and it is reasonable to 

require that each CEBB and CEBS pay 

a Historical CAT Assessment for each 

transaction in the prior month based on 

CAT Data.759 First, current Industry 

Members are actively reporting to the 

CAT 760 and therefore receive the 

benefits from the CAT. The CAT 

provides more effective oversight of 

market activity, which could increase 

investor confidence, resulting in 

expanded investment opportunities and 

increased trading activity.761 Second, it 

would be difficult to impose fees on 

Industry Members for their activity in 

the past because some Industry 

Members may no longer be in business 

and such Industry Members would not 

have taken into consideration the 

Historical CAT Assessment when 

entering into the past transactions.762 In 

this case, the Commission understands, 


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763 Id. at 17113, n.116 (stating that there has been 

substantial continuity in the largest Industry 

Members over time and providing statistics about 

the continuity). 

764See, e.g., CAT NMS Plan, supra note 2, at 

Section 11.1(b), Section 11.1(c), Section 11.2(b), 

Section 11.3. 

765See Notice, supra note 7, 88 FR at 17111. 

766See proposed Section 11.1(c) (emphasis 

added). 

767See Notice, supra note 7, 88 FR at 17111. 768See Citadel August Letter at 7. 769See proposed Section 11.3(b)(iii)(B)(II). 770 15 U.S.C. 78f(b)(4), 15 U.S.C. 78o–3(b)(5); 15 

U.S.C. 78f(b)(5), 15 U.S.C. 78o–3(b)(6); 15 U.S.C. 

78f(b)(8), 15 U.S.C. 78o–3(b)(9). 

771See proposed Section 11.3(b)(iii)(B)(II). 

772See Citadel August Letter at 7. 

773 Id. 

774See Notice, supra note 7, 88 FR at 17110–11 

(providing Historical CAT Costs prior to 2022). CAT 

LLC also provided updated Historical CAT Costs 

through 2022. See CAT LLC July 2023 Response 

Letter at 17. 

775See infra notes 1099–1102 and accompanying 

text (stating that a comparison to recent Section 31 

fees of $0.00009 per share to $0.0004 per share 

indicates that the anticipated Historical Fee Rate 

and Fee Rate, assuming the Fee Rate is of a similar 

magnitude as the Historical Fee Rate, are expected 

to be relatively small). See also infra note 1102 

(discussing another example Historical Fee Rate 

that was provided in the CAT LLC July 2023 

Response Letter at 18–19 that was close to the 

Historical Fee Rate in Exhibit C of the Proposed 

Amendment). 

776See proposed Section 11.3(b)(i)(D)(I). 

from CAT LLC’s analysis of Industry 

Members, that there is ‘‘substantial 

continuity’’ among the largest Industry 

Members, going back to 2020,763 and 

thus it is likely that the Industry 

Members responsible for substantial 

transaction activity in 2020 (and 

perhaps earlier, beyond the scope of 

CAT LLC’s analysis) would also be 

responsible for substantial transaction 

activity in 2023, mitigating concerns 

that current Industry Members would be 

responsible for CAT fees for the past 

transaction activity of non-operational 

Industry Members. 

Additionally, requiring CAT 

Executing Brokers to pay Historical CAT 

Assessments is appropriate because the 

Participants have thus far paid all Past 

CAT Costs and the CAT NMS Plan 

contemplates that both Industry 

Members and Participants would fund 

the Company.764 Furthermore, it is 

reasonable, in the Commission’s view, 

for the Participants to exclude certain 

costs from the Past CAT Costs to be 

recovered from Industry Members; for 

example, such excluded costs would 

encompass costs incurred when 

Industry Members as a group were not 

reporting to the CAT, and costs 

associated with the conclusion of the 

relationship with the Initial Plan 

Processor.765 CAT LLC also proposes to 

require the Operating Committee, in 

determining fees on Participants and 

Industry Members, to take into account 

fees, costs and expenses (including legal 

and consulting fees) reasonably incurred 

by the Participants on behalf of the 

Company prior to the Effective Date in 

connection with the creation and 

implementation of the CAT.766

In the Commission’s view, requiring 

the Operating Committee to take into 

account fees, costs and expenses 

(including legal and consulting fees) 

reasonably incurred by the Participants 

on behalf of the Company prior to the 

Effective Date in connection with the 

creation and implementation of the 

CAT, when determining fees for 

Participants and Industry Members will 

constrain the Operating Committee from 

assessing fees based on costs and 

expenses that are not reasonable. 

Further, the proposed exclusion of the 

‘‘Excluded Costs’’ from Past CAT Costs 

is reasonable in the Commission’s view 

because it would not require all costs 

incurred by the Participants to be 

recovered from Industry Members 

through the Historical CAT Assessment, 

specifically excluding those costs 

related to the delay in the start of 

reporting to the CAT and costs related 

to the conclusion of the relationship 

with the Initial Plan Processor.767

Finally, the Proposed Amendment 

sets forth a process that the Commission 

believes will offer an appropriate level 

of transparency into Historical CAT 

Costs. In response to a commenter that 

objected to the level of transparency 

provided about the total amount of 

Historical CAT Costs, and basic 

information about such costs, and stated 

that, as a result, the Commission cannot 

determine whether Historical CAT Costs 

are reasonable and cannot assess the 

impact of the proposed allocation on 

market liquidity, efficiency and 

competition,768 as discussed in Section 

III.A.6.e. herein, the Section 19(b) fee 

filings to be filed with the Commission 

by the Participants to impose the 

Historical CAT Assessment on Industry 

Members must include detailed 

information on the Historical CAT 

Costs, including the amount and type of 

Historical CAT Costs, and will allow the 

public the ability to comment on the 

Historical CAT Costs.769 In addition to 

addressing all relevant statutory 

requirements, including the 

requirements that the fees are 

reasonable, equitably allocated, not 

unfairly discriminatory, and do not 

unduly burden competition,770 these 

proposed Section 19(b) fee filings must 

contain ‘‘sufficient detail to demonstrate 

that such costs are reasonable and 

appropriate,’’ 771 which would provide 

the public and the Commission the 

detail needed to evaluate the Historical 

CAT Assessments. Once the proposed 

Section 19(b) fee filings are filed by the 

Participants, the Commission will 

review them for consistency with the 

Exchange Act and the CAT NMS Plan. 

In response to the comment that 

stated that the CAT Operating 

Committee has not assessed ‘‘whether 

trading activity may decline or bid-offer 

spreads may widen,’’ 772 and in 

response to the comment that the CAT 

Operating Committee ‘‘recklessly 

argues’’ that the proposed allocation of 

Historical CAT Costs is not concerning 

due to the existence of higher 

transaction-based fees,773 as stated 

above, the Proposed Amendment does 

not approve per se the amount of the 

Historical CAT Costs; it sets forth the 

model but leaves the amount and 

description of the Historical CAT Costs 

for the Section 19(b) fee filings. The 

Commission recognizes, however, that 

the Participants have disclosed the 

amount of the Historical CAT Costs in 

the Proposed Amendment.774 While 

such Historical CAT Costs are not being 

approved by the Commission at this 

time, the Commission understands that 

such amounts provide an indication of 

what might be charged. In this regard, 

the Commission notes the Participants 

have included in Exhibit C to the 

Proposed Amendment a chart setting 

forth an example Historical CAT 

Assessment, for illustrative purposes 

only, that each CAT Executing Broker 

would pay based on its transactions in 

Eligible Securities in December 2022 

related to CAT costs from prior to 2022. 

The chart indicated that the Historical 

Fee Rate for the assumed December 

2022 period was $0.0000417950 per 

executed equivalent share. The 

Commission believes that potential 

Historical CAT Assessments are likely 

to be significantly lower than fees 

assessed pursuant to Section 31.775

Accordingly, the Commission believes 

that any potential impact on trading 

activity or bid-ask spreads would likely 

be limited. 

b. Historical Recovery Period 

The ‘‘Historical Recovery Period’’ 

would be used to calculate the 

Historical Fee Rate for a Historical CAT 

Assessment.776 Proposed Section 

11.3(b)(i)(D) of the CAT NMS Plan 

provides the Operating Committee with 

the discretion to reasonably establish 

the length of the Historical Recovery 

Period as long as no such period is less 

than 24 months and more than five 

years. CAT LLC analyzed potential 

recovery periods and determined that 

the Historical Fee Rate calculated using 


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777See Notice, supra note 7, 88 FR at 17096–97. 

CAT LLC acknowledged that the Historical CAT 

Assessment would need to be calculated using upto-date Historical CAT Costs and executed 

equivalent share volume. Id. at 17097. 

778 Id. at 17096. 

779 Id. at 17097. 

780See CAT NMS Plan, supra note 2, at Section 

11.1(b). 

781See proposed Section 11.3(b)(i)(A). Proposed 

Section 11.3(b)(i)(B) provides that the executed 

equivalent shares used to calculate the Historical 

CAT Assessment would be counted in the same 

manner as executed equivalent shares used to 

calculate CAT Fees related to Prospective CAT 

Costs. 782 15 U.S.C. 78s(b). 783See proposed Section 11.3(b)(i)(A). 

784 Id.; see also 15 U.S.C. 78s(b); see infra Section 

III.A.6.e. (Historical CAT Assessment—Fee Filings 

under Section 19(b) of the Exchange Act for 

Industry Member CAT Fees) for a discussion of 

Section 19(b) filing requirements. 

785Proposed Section 11.3(b)(i)(E). 

786See Notice, supra note 7, 88 FR at 17097. 

787See proposed Section 11.3(b)(iii)(B)(II). 

788See proposed Section 11.3(b)(i)(A). 

789See proposed Section 11.3(b)(i)(C). 

790See Notice, supra note 7, 88 FR at 17111. 

791See proposed Section 11.3(b)(i)(C). 

792See Notice, supra note 7, 88 FR at 17116–17. 

793 Id. at 17097. 

794See proposed Section 11.3(b)(iii)(B)(II). 

the proposed Historical Recovery Period 

of two to five years would be reasonable 

for Industry Members even if they had 

to pay both the ongoing CAT Fee and 

the Historical Fee Assessment 

simultaneously.777 Additionally, in 

determining the range for the Historical 

Recovery Period, CAT LLC ‘‘sought to 

weigh the need for a reasonable 

Historical Fee Rate that spreads the 

Historical CAT Costs over an 

appropriate amount of time and the 

need to repay the loan notes to the 

Participants in a timely fashion.’’ 778 In 

the Commission’s view, it is reasonable 

for the Operating Committee to establish 

the length of the Historical Recovery 

Period to be no less than 24 months and 

no more than five years. According to 

the Participants, ‘‘[t]he length of the 

Historical Recovery Period used in 

calculating each Historical Fee Rate will 

be reasonably established by the 

Operating Committee based on the 

amount of the Historical CAT Costs to 

be recovered by the Historical CAT 

Assessment.’’ 779 The Operating 

Committee is authorized by the CAT 

NMS Plan to establish the funding of 

CAT LLC, including the fees to be paid 

by Participants and Industry 

Members.780 Because the Historical 

Recovery Period is used in the 

calculation of Historical CAT 

Assessments to recover costs incurred to 

fund the CAT, the Commission views it 

as appropriate for the Operating 

Committee to determine a reasonable 

length of time for the Historical 

Recovery Period since the Operating 

Committee has authority over CAT 

funding pursuant to the Plan. 

c. Historical Fee Rate 

The Historical Fee Rate would be 

used to calculate Historical CAT 

Assessments. The Operating Committee 

will calculate the Historical Fee Rate for 

each Historical CAT Assessment by 

dividing the Historical CAT Costs for 

each Historical CAT Assessment by the 

reasonably projected total executed 

equivalent share volume of all 

transactions in Eligible Securities for the 

Historical Recovery Period.781

Additionally, proposed Section 

11.3(b)(i)(A) states that once the 

Operating Committee has approved a 

Historical Fee Rate, the Participants will 

be required to file with the Commission, 

pursuant to Section 19(b) of the 

Exchange Act,782 the Historical CAT 

Assessment to be charged to Industry 

Members using the Historical Fee 

Rate.783 Industry Members would be 

required to pay such Historical CAT 

Assessment using such Historical Fee 

Rate once such Historical CAT 

Assessment is in effect in accordance 

with Section 19(b) of the Exchange 

Act.784

Proposed Section 11.3(b)(i)(E) of the 

CAT NMS Plan provides that ‘‘[t]he 

Operating Committee shall reasonably 

determine the projected total executed 

equivalent share volume of all 

transactions in Eligible Securities for 

each Historical Recovery Period based 

on the executed equivalent share 

volume of all transactions in Eligible 

Securities for the prior twelve 

months.’’ 785 CAT LLC would allow the 

Operating Committee to base its 

projected total executed equivalent 

share volume on the prior twelve 

months, but to use its discretion to 

analyze the likely volume for the 

upcoming year.786 Participants would 

be required to describe the calculation 

of the projection in their fee filings 

submitted to the Commission, pursuant 

to Section 19(b) of the Exchange Act, to 

implement the Historical CAT 

Assessments on Industry Members.787

The calculation of the Historical Fee 

Rate by dividing Historical CAT Costs 

by the projected total executed 

equivalent share volume of all 

transactions in Eligible Securities for the 

Historical Recovery Period 788 is 

reasonable. First, it is appropriate for 

the Historical Fee Rate to be based on 

Historical CAT Costs. The Proposed 

Amendment defines Historical CAT 

Costs as Past CAT Costs minus the Past 

CAT Costs reasonably excluded from 

Historical CAT Costs by the Operating 

Committee 789 (e.g., the Excluded 

Costs).790 It is appropriate to use the 

Historical CAT Costs related to a 

Historical CAT Assessment to calculate 

the Historical Fee Rate used to calculate 

the Historical CAT Assessment because 

the Participants are seeking to recover 

the Historical CAT Costs through the 

Historical CAT Assessment.791 The use 

of Historical CAT Costs is appropriate to 

determine the Historical Fee Rate 

because it ties the Historical Fee Rate to 

the costs that the CAT has incurred and 

will be apportioned among the CAT 

Executing Brokers for recovery. Second, 

it is appropriate to use the projected 

total executed equivalent share volume 

of all transactions in Eligible Securities 

for the Historical Recovery Period to 

calculate the Historical Fee Rate because 

this would provide the likely volume for 

the Historical Recovery Period to be 

used as the denominator, similar to the 

manner in which the Fee Rate for 

Prospective CAT Fees would be 

calculated. This proposed projection of 

total executed equivalent share volume 

based on the prior twelve months is 

appropriate because it balances the use 

of data that is sufficiently long to avoid 

short term fluctuations while providing 

data close in time to the calculation of 

the Fee Rate or Historical Fee Rate.792

Additionally, it is appropriate for CAT 

LLC to permit the Operating Committee 

to use its discretion to analyze the likely 

volume for the upcoming year.793 This 

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. Furthermore, 

since the Participants would be required 

to describe the calculation of the 

projected total executed equivalent 

share volume in the fee filings 

submitted to the Commission, pursuant 

to Section 19(b) of the Exchange Act, to 

implement the Historical CAT 

Assessments on Industry Members, the 

public will have an opportunity to 

review the projection and provide 

comment.794

d. Length of Time Historical CAT 

Assessment Would Be in Effect 

Proposed Section 11.3(b)(i)(D)(II) of 

the CAT NMS Plan would describe the 

length of time that a Historical CAT 

Assessment would be in effect. This 

period of time may be longer or shorter 

than the Historical Recovery Period 

used to calculate the Historical Fee Rate 

for a Historical CAT Assessment. Each 

Historical CAT Assessment calculated 


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795See proposed Section 11.3(b)(i)(D)(II). 796Notice, supra note 7, 88 FR at 17097. 797 Id. 798 15 U.S.C. 78s(b). 799See proposed Section 11.3(b)(i)(A). 800See proposed Section 11.3(b)(iii)(B)(I), (II), 

(III). 

801Proposed Section 11.3(b)(iii)(B)(II). 

802 15 U.S.C. 78s(b). 

803See proposed Section 11.3(b)(iii)(B)(II). 

804 Id. 

805 Id. 

806 15 U.S.C. 78s(b). 

807See, e.g., Section 11.6(a)(iv) (‘‘The Participants 

will only be permitted to collect Post-Amendment 

Industry Member Fees for Period 1, Period 2, Period 

3, or Period 4 at the end of each respective 

Period.’’). Section 11.6 of the CAT NMS Plan is 

designed to reduce the amount of fees, costs, and 

expenses that the Participants may recover from 

Industry Members if the Participants miss the target 

deadlines established by that Section. To the extent 

that the Participants miss a target deadline 

established by Section 11.6, the Participants would 

be responsible for paying a larger amount of CATrelated fees, costs, and expenses on their own. The 

Commission expects that the portion of these fees, 

costs, and expenses that is attributable to for-profit 

national securities exchanges would likely be paid 

out of their existing profits, whereas the portion of 

these fees, costs, and expenses that is attributable 

to non-profit national securities associations like 

FINRA would likely be paid out of past revenue or 

new and/or existing fees. The Commission would 

evaluate any such new or existing fees in 

accordance with Section 6(b)(4) and Section 

15A(b)(5) of the Exchange Act. 15 U.S.C. 78f(b)(4); 

15 U.S.C. 78o–3(b)(5). 

808 15 U.S.C. 78s(b). 

809The Commission does not believe it could 

determine whether the Historical CAT Costs 

associated with a Financial Accountability 

Milestone are ‘‘reasonable or appropriate’’ under 

Section 11.3(b)(iii)(B)(II) without such information. 

810 15 U.S.C. 78s(b). 

811See proposed Section 11.3(b)(iii)(B)(II). 

using the Historical Fee Rate would 

remain in effect until all Historical CAT 

Costs for that Historical CAT 

Assessment are collected.795 CAT LLC 

stated that ‘‘[a]ny Historical CAT 

Assessment would remain in effect until 

the relevant Historical CAT Costs are 

collected, whether that time is shorter or 

longer than the Historical Recovery 

Period used in calculating the Historical 

Fee Rate.’’ 796 The length of time that the 

Historical CAT Assessment would be in 

effect would depend ‘‘on the amount of 

the Historical CAT Assessments 

collected based on the actual volume 

during the time that the Historical CAT 

Assessment is in effect.’’ 797

In the Commission’s view, it is 

reasonable for Industry Members to be 

charged a Historical CAT Assessment 

until all Historical CAT Costs for the 

Historical CAT Assessment are 

collected. The Commission understands 

that the amount of Historical CAT Costs 

collected will vary depending on how 

the actual volume compares to the 

estimated volume. To the extent the 

actual volume exceeds the estimated 

volume, a Historical CAT Assessment 

would be collected faster and thus 

would be in effect for a shorter period. 

Similarly, to the extent the actual 

volume is less than the estimated 

volume, the Historical CAT Assessment 

would be collected slower and thus 

would be in effect for a longer period. 

e. Fee Filings Under Section 19(b) of the 

Exchange Act for Industry Member CAT 

Fees 

Once the Operating Committee has 

approved a Historical Fee Rate, the 

Participants shall be required to file 

with the Commission, pursuant to 

Section 19(b) of the Exchange Act,798

such Historical CAT Assessment to be 

charged Industry Members calculated 

using such Historical Fee Rate.799 CAT 

LLC proposes to provide additional 

details regarding the fee filings to be 

filed by the Participants regarding each 

Historical CAT Assessment pursuant to 

Section 19(b) of the Exchange Act in 

proposed Section 11.3(b)(iii)(B) of the 

CAT NMS Plan. Specifically, this 

provision would describe that fee filings 

would be required for each Historical 

CAT Assessment, the content of such 

fee filings, and the effect of the 

Financial Accountability Milestones 

described in Section 11.6 of the CAT 

NMS Plan on the fee filings.800

Proposed Section 11.3(b)(iii)(B)(I) of 

the CAT NMS Plan would state that 

‘‘Participants will be required to file 

with the SEC pursuant to Section 19(b) 

of the Exchange Act a filing for each 

Historical CAT Assessment.’’ 801 CAT 

LLC proposes to provide additional 

detail about the information that 

Participants would be required to 

include in the filings for the Historical 

CAT Assessments in proposed Section 

11.3(b)(iii)(B)(II). The proposed 

paragraph sets forth the information 

about the Historical CAT Assessments 

that should be included in the fee filings 

required to be made by the Participants 

pursuant to Section 19(b) of the 

Exchange Act.802 Specifically, such 

filings would be required to include: (A) 

the Historical Fee Rate; (B) a brief 

description of the amount and type of 

Historical CAT Costs, 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; (C) the Historical 

Recovery Period and the reasons for its 

length; and (D) the projected total 

executed equivalent share volume of all 

transactions in Eligible Securities for the 

Historical Recovery Period, and a 

description of the calculation of the 

projection.803

In addition, CAT LLC proposes to 

clarify that the Historical CAT Costs 

described in the fee filings must provide 

sufficient detail to demonstrate that 

such costs are reasonable and 

appropriate.804 Therefore, CAT LLC 

proposes to add the following sentence 

to proposed Section 11.3(b)(iii)(B)(II) of 

the CAT NMS Plan: ‘‘The information 

provided in this Section would be 

provided with sufficient detail to 

demonstrate that the Historical CAT 

Costs are reasonable and 

appropriate.’’ 805

Proposed Section 11.3(b)(iii)(B)(III) 

provides that the Participants will not 

make CAT fee filings pursuant to 

Section 19(b) of the Exchange Act 806

regarding a Historical CAT Assessment 

until any applicable Financial 

Accountability Milestone has been 

satisfied. This provision is appropriate 

as it takes into account existing 

requirements set forth in Section 11.6 of 

the CAT NMS Plan that prevent the 

Participants from recovering fees related 

to any given Financial Accountability 

Milestone until that Financial 

Accountability Milestone has been 

achieved.807

The Commission emphasizes that the 

fee filings filed with the Commission, 

pursuant to Section 19(b) of the 

Exchange Act,808 to implement each 

Historical CAT Assessment on Industry 

Members will need to provide sufficient 

information to enable the Commission 

to make a determination on whether and 

when the Participants have satisfied 

each of the Financial Accountability 

Milestones—questions that the 

Commission is not deciding herein. This 

Order only approves the establishment 

of the framework by which the 

Participants will propose Historical 

CAT Assessments to be charged to 

Industry Members.809

In the Commission’s view, the 

proposed requirement for the 

Participants to file fee filings with the 

Commission, pursuant to Section 19(b) 

of the Exchange Act,810 to implement 

each Historical Fee Assessment on 

Industry Members is appropriate. The 

detail provided in the fee filings for the 

Historical CAT Assessment would 

provide transparency into the Past CAT 

Costs as it would describe the amount 

and type of Historical CAT Costs and 

allow the public the ability to comment 

on the Historical CAT Costs.811 The fee 

filings must contain sufficient detail to 

demonstrate that the fees are consistent 

with the Exchange Act, including that 

such costs are reasonable and 


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812 Id. 

813Proposed Section 11.3(b)(iii)(B)(II). 

814Notice, supra note 7, 88 FR at 17098. 

815See proposed Section 11.3(b)(iii)(B)(II). 

816 Id. 

817Proposed Section 11.3(b)(ii). 

818See Notice, supra note 7, 88 FR at 17112. 

819Proposed Section 11.3(b)(ii). 

820 Id. 

821 Id. 

822Notice, supra note 7, 88 FR at 17097, n.48. 

823 Id. at 17112. 

824 Id. 

825See CAT NMS Plan, supra note 2, at Section 

11.1(b), Section 11.3(b). 

826See proposed Section 11.3(a)(ii). 

827See Notice, supra note 7, 88 FR at 17086. 

828Proposed Section 11.3(a)(iv)(A). 

829Proposed Section 11.3(b)(iv)(A). 

830See proposed Section 11.3(a)(iv)(A); proposed 

Section 11.3(b)(iv)(A) 

831See proposed Section 11.3(a)(iv)(B); proposed 

Section 11.3(b)(iv)(B). 

appropriate,812 and provide the public 

with the detail needed to evaluate the 

Historical CAT Assessments for 

comment. 

The Proposed Amendment offers an 

appropriate level of transparency into 

the Past CAT Costs used for the 

Historical CAT Assessment so that the 

industry and the public will be able to 

understand and assess the Past CAT 

Costs and the Historical Fee Rate. The 

Proposed Amendment requires the 

Section 19(b) fee filings to be submitted 

to the Commission by the Participants to 

establish the Historical CAT 

Assessments for Industry Members to 

contain the following information: ‘‘(A) 

the Historical Fee Rate; (B) a brief 

description of the amount and type of 

Historical CAT Costs, 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; (C) the Historical 

Recovery Period and the reasons for its 

length; and (D) the projected total 

executed equivalent share volume of all 

transactions in Eligible Securities for the 

Historical Recovery Period, and a 

description of the calculation of the 

projection.’’ 813 CAT LLC explained that 

this information ‘‘would provide 

Industry Members and other interested 

parties with a clear understanding of the 

calculation of each Historical CAT 

Assessment and its relationship to 

Historical CAT Costs.’’ 814 In the 

Commission’s view, the detail provided 

in the fee filings for the Historical CAT 

Assessment would provide transparency 

into the Past CAT Costs as the filings 

would describe the amount and type of 

Historical CAT Costs and allow the 

public the ability to comment on the 

Historical CAT Costs.815 Additionally, 

pursuant to the Proposed Amendment 

being approved, the fee filings will also 

need to contain ‘‘sufficient detail to 

demonstrate that such costs are 

reasonable and appropriate,’’ 816 which 

would provide the public and the 

Commission the detail needed to 

evaluate the Historical CAT 

Assessments for consistency with the 

Exchange Act and the CAT NMS Plan. 

f. Past CAT Costs and Participants 

Proposed Section 11.3(b)(ii) of the 

CAT NMS Plan would clarify that the 

Participants would not be required to 

pay the Historical CAT Assessment as 

the Participants previously have paid all 

Past CAT Costs. It would state that, 

‘‘[b]ecause Participants previously have 

paid Past CAT Costs via loans to the 

Company, Participants would not be 

required to pay any Historical CAT 

Assessment.’’ 817 In addition, proposed 

Section 11.3(b)(ii) of the CAT NMS Plan 

would state that the Historical CAT fees 

collected from Industry Members would 

be allocated to Participants for 

repayment of the outstanding loan notes 

of the Participants to the Company on 

a pro rata basis; such fees would not be 

allocated to Participants based on the 

executed equivalent share volume of 

transactions in Eligible Securities.818

Specifically, proposed Section 

11.3(b)(ii) of the CAT NMS Plan would 

state that ‘‘[i]n lieu of a Historical CAT 

Assessment, the Participants’ one-third 

share of Historical CAT Costs and such 

other additional Past CAT Costs as 

reasonably determined by the Operating 

Committee will be paid by the 

cancellation of loans made to the 

Company on a pro rata basis based on 

the outstanding loan amounts due under 

the loans.’’ 819 Furthermore, proposed 

Section 11.3(b)(ii) of the CAT NMS Plan 

would emphasize that ‘‘[t]he Historical 

CAT Assessment is designed to recover 

two-thirds of the Historical CAT 

Costs.’’ 820

The proposed allocation of the 

Historical CAT Assessment solely to 

CEBSs and CEBBs, and ultimately 

Industry Members, is reasonable. The 

Historical CAT Assessment will still be 

divided into thirds.821 CAT LLC stated 

that the Participants’ one-third share of 

Historical CAT Costs and such other 

additional Past CAT Costs as reasonably 

determined by the Operating Committee 

‘‘will be paid by the cancellation of 

loans made to the Company on a pro 

rata basis based on the outstanding loan 

amounts due under the loans’’ and that 

the Participants will also be 100% 

responsible for the Excluded Costs.822

CAT LLC explained that the terms of the 

loan agreements between CAT LLC and 

the Participants dictate that repayment 

of the notes will be on a pro rata 

basis.823 The pro rata basis for 

cancelling the loans is appropriate 

because repayment of the loans made by 

the Participants is required pro rata per 

the loan agreements between the 

Participants and CAT LLC.824 The CAT 

NMS Plan permits the Participants to 

seek recovery of CAT costs from 

Industry Members, which includes Past 

CAT Costs.825 However, similar to 

cancelling the loans, the Executed Share 

Model would require the Participants to 

pay CAT fees related to Prospective 

CAT Costs.826

7. Calculation Information; Billing and 

Collection of CAT Fees 

CAT LLC proposed to provide 

Participants and CAT Executing Brokers 

with details regarding the calculation of 

their CAT Fees upon request.827

Specifically, CAT LLC proposed to add 

Section 11.3(a)(iv)(A) to the CAT NMS 

Plan to provide that ‘‘[d]etails regarding 

the calculation of a Participant or CAT 

Executing Brokers’ CAT Fees will be 

provided upon request to such 

Participant or CAT Executing 

Broker.’’ 828 Similarly, for the Historical 

CAT Assessment, under proposed 

Section 11.3(b)(iv)(A), ‘‘at minimum, 

such details would include each CAT 

Executing Broker’s executed equivalent 

share volume and corresponding 

fee.’’ 829 In both cases, the new sections 

require that these details be separated 

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 buyside transactions and sell-side 

transactions.830 Additionally, for each 

CAT Fee and Historical CAT 

Assessment, at a minimum, CAT LLC 

will make publicly available the 

aggregate executed equivalent share 

volume and corresponding aggregate fee 

also 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 buyside transactions and sell-side 

transactions.831 The Commission 

understands that the publicly available 

aggregate statistics will be made 

available by CAT LLC on a monthly 

basis with each invoice. 

CAT LLC stated that consistent with 

Section 11.1(d) of the CAT NMS Plan, 

it will adopt policies, procedures and 

practices regarding the billing and 


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832See Notice, supra note 6, 88 FR at 17089. 

833 Id. at 17101. 

834See CAT NMS Plan, supra note 2, at Section 

11.4. 

835 Id. at Section 3.7(b). If any such remaining 

outstanding balance is not paid within thirty (30) 

days after the Payment Date, the Participants shall 

file an amendment to this Agreement requesting the 

termination of the participation in the Company of 

such Participant, and its right to any Company 

Interest, with the Commission. 

836See Notice, supra note 7, 88 FR at 17099. 

837See CAT NMS Plan, supra note 2, at Section 

11.3(a)(i) and (ii); Section 11.3(b). 

838See proposed Section 11.3(a)(ii) and (iii); 

proposed Section 11.3(b)(iii). 

839See Notice, supra note 7, 88 FR at 17099. 

840Proposed Section 11.2(c). 

841See Notice, supra note 7, 88 FR at 17100–01. 

842See CAT NMS Plan, supra note 2, at Section 

11.3(a) and (b). 

843See Notice, supra note 7, 88 FR at 17101. 

844 Id. at 17100–01. 

845 Id. at 17100. 

collection of fees Section 11.4 of the 

CAT NMS Plan.832 In addition, pursuant 

to Section 11.4 of the CAT NMS Plan, 

CAT LLC will establish a system for the 

collection of CAT fees from Participants 

and Industry Members.833 Under 

Section 11.4 of the CAT NMS Plan, the 

Participants must 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, 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.834

Similarly, as set forth in Section 3.7(b) 

of the CAT NMS Plan, each Participant 

must pay all fees or other amounts 

required to be paid under the Plan 

within thirty (30) days after receipt of an 

invoice or other notice indicating 

payment is due (unless a longer 

payment period is otherwise indicated) 

(‘‘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) the Prime Rate 

plus 300 basis points; or (ii) the 

maximum rate permitted by applicable 

law.835 The Commission did not receive 

any objections to nor any comments 

regarding the calculation of this interest 

rate. 

The proposed provision to 

Participants and CAT Executing Brokers 

with details regarding the calculation of 

their CAT Fees upon request is 

reasonable. In the Commission’s view, 

providing CAT Execution Brokers 

information regarding the calculation of 

their CAT Fees will aid in transparency 

and permit CAT Execution Brokers to 

confirm the accuracy of their invoices 

for CAT Fees. The 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. 

8. Additional Changes From Original 

Funding Model 

CAT LLC proposed to delete the term 

‘‘Execution Venue’’ and its definition 

from Section 1.1 of the CAT NMS Plan, 

explaining that this term is not relevant 

in the Executed Share Model.836 Section 

1.1 of the existing CAT NMS Plan 

defined ‘‘Execution Venue’’ to mean ‘‘a 

Participant or an alternative trading 

system (‘ATS’) (as defined in Rule 300 

of Regulation ATS) that operates 

pursuant to Rule 301 of Regulation ATS 

(excluding any such ATS that does not 

execute orders).’’ The Original Funding 

Model would have imposed fees based 

on market share to CAT Reporters that 

are Execution Venues, including ATSs, 

and fees based on message traffic for 

Industry Members’ non-ATS 

activities.837 In contrast, the Executed 

Share Model does not use the term 

‘‘Execution Venue,’’ as the Executed 

Share Model imposes fees based on the 

executed equivalent shares of 

transactions in Eligible Securities for 

three categories of CAT Reporters: 

Participants, CEBBs and CEBSs.838

CAT LLC also proposed to amend 

Section 11.2(c) and Section 11.3(a) and 

(b) of the CAT NMS Plan to require 

Participants and CAT Executing Brokers 

to pay CAT fees based on the number 

of executed equivalent shares in a 

transaction in Eligible Securities instead 

of based on market share and message 

traffic.839

First, CAT LLC proposed to delete 

subparagraphs (i) and (ii) of Section 

11.2(c) and replace these subparagraphs 

with the requirement that the fee 

structure in which the fees charged to 

‘‘Participants and Industry Members are 

based upon the executed equivalent 

share volume of transactions in Eligible 

Securities.’’ 840 The deleted provisions 

would have required the Operating 

Committee, in establishing the funding 

of the Company, to seek to establish a 

tiered fee structure in which the fees 

charged to: (i) CAT Reporters that are 

Execution Venues, including ATSs, are 

based upon the level of market share 

and (ii) Industry Members’ non-ATS 

activities are based upon message 

traffic. 

Second, CAT LLC proposed to amend 

Sections 11.3(a) and 11.3(b) of the CAT 

NMS Plan to remove detail regarding 

fixed fees and fee tiers for market share 

and message traffic by Participants and 

Execution Venue ATSs under the 

Original Funding Model.841 Section 

11.3(a) currently describes the fixed 

CAT fees to be paid by Participants and 

Execution Venue ATSs based on market 

share and Section 11.3(b) currently 

describes the fixed CAT fees to be paid 

by Industry Members (other than 

Execution Venue ATSs) based on 

message traffic.842 The text in these 

sections would be replaced with 

proposed Sections 11.3(a) and (b), 

which, as discussed above, would 

describe the calculation and application 

of the CAT Fees related to Prospective 

CAT Costs and the Historical CAT 

Assessments. These proposed changes 

to Sections 11.3(a) and (b) would also 

replace references to ‘‘fixed fees’’ with 

‘‘fees’’ instead. CAT LLC explained that 

the concept of fixed fees is not relevant 

in the Executed Share Model.843

CAT LLC also proposed to amend 

Sections 11.1(d), 11.2(c), 11.3(a) and 

11.3(b) of the CAT NMS Plan to 

eliminate tiered fees and related 

concepts because the Executed Share 

Model does not utilize tiering.844 First, 

CAT LLC proposed to remove a 

reference to the ‘‘assignment of tiers’’ 

from Section 11.1(d). CAT LLC also 

proposed to remove two sentences from 

Section 11.1(d) permitting the Operating 

Committee to change the tier assigned to 

any Person. Second, CAT LLC proposed 

to amend Section 11.2(c) to delete a 

reference to a tiered fee structure 

(specifically, deleting the word ‘‘tiered’’) 

so that CAT fees would not be tiered 

under the Executed Share Model. Third, 

CAT LLC proposed to delete 

subparagraph (iii) of Section 11.2(c), 

which required the Operating 

Committee, in establishing the funding 

of the Company, to seek to establish a 

fee structure in which the fees charged 

to CAT Reporters with the most CATrelated activity (measured by market 

share and/or message traffic, as 

applicable) are generally comparable 

(where, for these comparability 

purposes, the tiered fee structure takes 

into consideration affiliates between or 

among CAT Reporters, whether 

Execution Venues and/or Industry 

Members).845 CAT LLC explained that 

this comparability provision was a 

factor used to determine the tiers for 

Industry Members and Execution 

Venues under the Original Funding 

Model, but that it is no longer necessary 

since the proposed Executed Share 


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846 Id. 

847 Id. at 17100–01. 

848 Id. at 17099. 

849Proposed Section 11.2(c). 

850See proposed Section 11.3(a)(ii)(A), (a)(iii)(A), 

(b)(iii)(A). 

851Notice, supra note 7, 88 FR at 17100. 

852 Id. 

853 Id. at 17101. 

854See proposed Section 11.2(c) (‘‘. . . fees 

charged to Participants and Industry Members are 

based upon the executed equivalent share volume 

of transactions in Eligible Securities, and the costs 

of the CAT.’’ (emphasis added)). 

855See Notice, supra note 7, 88 FR at 17099. 

856See DASH April 2023 Letter at 2; DASH 

January 2023 Letter at 3; SIFMA June 2023 Letter 

at 4; SIFMA May 2023 Letter at 2; SIFMA June 2022 

Letter at 2; SIFMA January 2023 Letter at 2; Citadel 

July Letter at 9–10. See also FINRA June 2022 Letter 

at 8, 9 (advocating for a more inclusive 

development process that would include input from 

the industry); MMI July Letter at 2, 4; Virtu Letter 

at 6 (stating that they would like to have a 

meaningful dialogue with the Participants and that 

the best way forward is for the interested parties to 

meet and devise an equitable solution); FIA Letter 

at 4 (stating that they have ‘‘raised concerns over 

the lack of industry participation in the 

development, operation and cost allocation 

processes of the CAT’’ and they ‘‘believe that at a 

minimum, the CAT Operating Committee should be 

reconfigured, with Industry Members comprising 

the percentage of the Committee equivalent to 

whatever cost allocation percentage is eventually 

allocated to them.’’). 

857See SIFMA May 2023 Letter at 2. See also 

SIFMA June 2023 Letter at 4, 5; SIFMA June 2022 

Letter at 2; SIFMA January 2023 Letter at 2. 

858See DASH April 2023 Letter at 2; DASH 

January 2023 Letter at 3. 

859MMI July Letter at 4. 

860 Id. 

861See CAT LLC May 2023 Response Letter at 12. 

862 Id. 

863See SIFMA June 2023 Letter at 4. 

864 Id. 

Model would not use a tiered fee 

structure.846 Finally, as discussed 

above, CAT LLC proposed to amend 

Sections 11.3(a) and (b) to replace the 

language with proposed Sections 11.3(a) 

and (b), which would describe the 

calculation and application of the CAT 

Fees related to Prospective CAT Costs 

and the Historical CAT Assessments. 

CAT LLC states that such proposed 

changes would remove the references to 

tiers in Sections 11.3(a)(i) and (ii) and 

11.3(b).847

In addition, CAT LLC proposed to 

amend the CAT funding principles to 

clarify that CAT Fees and the Historical 

CAT Assessments are intended to be 

cost-based fees.848 Specifically, CAT 

LLC proposed to amend the funding 

principle set forth in Section 11.2(c) by 

making a specific reference to ‘‘the costs 

of the CAT.’’ Proposed Section 11.2(c) 

would state, ‘‘[i]n establishing the 

funding of the Company, the Operating 

Committee shall seek . . . to establish a 

fee structure in which the fees charged 

to Participants and Industry Members 

are based upon the executed equivalent 

share volume of transactions in Eligible 

Securities, and the costs of the CAT 

(emphasis added).’’ 849

In the Commission’s view, the 

proposed deletion of the term 

‘‘Execution Venue’’ from the CAT NMS 

Plan is reasonable because the term is 

no longer relevant to the CAT NMS 

Plan. The proposed Executed Share 

Model does not impose fees on 

Execution Venues and would instead 

impose fees on Participants and CAT 

Executing Brokers (and, ultimately, 

Industry Members) and therefore it is 

appropriate to delete the term. 

Additionally, it is reasonable to 

amend Section 11.2(c) and Section 

11.3(a) and (b) of the CAT NMS Plan to 

reflect the proposed use of the number 

of executed equivalent shares in 

transactions in Eligible Securities in 

calculating CAT fees. These changes are 

appropriate because, unlike the Original 

Funding Model, the proposed Executed 

Share Model would not use message 

traffic, or a tiered fee structure. 

Further, the proposed elimination of 

tiered fees and related concepts from the 

CAT NMS Plan and the proposed 

replacement of ‘‘fixed fees’’ with 

references to ‘‘fees’’ in the CAT NMS 

Plan are reasonable. The Original 

Funding Model would use a tiered fee 

structure of fixed fees; however, the 

proposed Executed Share Model would 

require each Participant and CAT 

Executing Broker to pay a CAT fee based 

on its transactions in Eligible 

Securities.850 CAT LLC explained that 

‘‘[t]he proposed non-tiering approach is 

simpler and more objective to 

administer than the tiering 

approach’’ 851 and that removing tiers 

‘‘eliminates a variety of subjective 

analyses and judgments from the model 

and simplifies the determination of CAT 

fees.’’ 852 Additionally, the Proposed 

Amendment would replace the concept 

of ‘‘fixed fees’’ with ‘‘fees’’ because CAT 

fees will vary in accordance with the 

number of executed equivalent shares in 

a transaction.853 The proposed 

elimination of tiered fees and related 

concepts from the CAT NMS Plan and 

the proposed replacement of ‘‘fixed 

fees’’ with references to ‘‘fees’’ in the 

CAT NMS Plan are reasonable because 

these changes conform the CAT NMS 

Plan funding model to the proposed 

Executed Share Model. 

Additionally, the Proposed 

Amendment would amend Section 

11.2(c) to make clear that the fee 

structure established by the Operating 

Committee to charge fees to Participants 

and Industry Members would also be 

based on the costs of the CAT.854 CAT 

LLC explained that the change clarifies 

that the CAT fees are cost-based fees 

designed to recover the cost of the 

creation, implementation and operation 

of the CAT.855 These proposed changes 

are appropriate because they would 

update language in the Original Funding 

Model to reflect the operation of the 

proposed Executed Share Model. 

9. Other Comments 

a. Lack of Industry Input 

A number of commenters stated that 

the Proposed Amendment lacks input 

from the industry.856 One commenter 

stated that the Participants did not 

meaningfully solicit input from the 

industry when developing the Executed 

Share Model.857 Another commenter 

stated that the Proposed Amendment 

reflects a lack of representation by 

executing brokers and offered its 

participation in future discussions and 

advisory committees on the topic of 

CAT funding.858 One commenter stated 

that ‘‘[t]he impact of CAT on the 

brokerage community must be taken 

seriously by the SRO committee, and 

brokers need their voice heard on the 

committee’s recommendations. To date, 

we have seen little evidence of 

either.’’ 859 This commenter also 

suggested the allocation of human 

resources to hire industry experts in 

industry workflows and public-private 

engagement to assist with building the 

CAT.860

In response, CAT LLC stated that it 

has engaged with the industry on the 

funding model over the past seven 

years, explaining that it has discussed 

funding model issues with the CAT 

Advisory Committee, which includes 

representation from the industry, as 

well as with industry associations such 

as SIFMA and the Financial Information 

Forum, and with individual Industry 

Members; analyzed and responded to 

comment letters on the prior proposals; 

and hosted webinars for the industry on 

funding issues.861 CAT LLC stated that 

it welcomes industry input on the 

funding model but believes a decision 

on the model is overdue.862

In response, one commenter stated 

that Industry Members are willing to 

work with the Commission and the 

Participants to develop a CAT funding 

model.863 The commenter urged 

collaboration and dialogue between the 

Participants and the Industry Members 

before the filing of a formal proposal 

with the Commission.864 The 

commenter also stated that limiting 

industry input to the notice and 

comment process for NMS plan 

amendments is an inefficient process 


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865 Id. at 4–5. 

866See Citadel July Letter at 9–10. 

867 Id. at 6. 

868See MMI July Letter at 2; SIFMA June 2023 

Letter at 4. 

869See CAT LLC July 2023 Response Letter at 26– 

27. 

870 Id. at 28. 

871 Id. at 27–28. 

872 Id. at 28. 

873See CAT Industry Webinar: CAT Costs (Sept. 

21, 2021), available at https://catnmsplan.com/ 

sites/default/files/2021-09/09.21.21-CAT-Costs_

0.pdf; CAT Industry Webinar: Fee Models (Sept. 22, 

2021), available at https://catnmsplan.com/sites/ 

default/files/2021-09/09.22.21-CAT-Fee-Model.pdf. 

874See, e.g., supra note 58; see also https://

www.sec.gov/comments/4-698/4-698-a.htm. 

875SIFMA May 2023 Letter at 2. 

876See CAT LLC May 2023 Response Letter at 12. 

877 Id. 

878See SIFMA June 2023 Letter at 2, 6–7; Citadel 

July Letter at 5; FIA Letter at 5; FIF and SIFMA 

Letter at 4, 5, 8–23. 

879See SIFMA Letter June 2023 at 6. 

880 Id. at 6–7. 

881 Id. at 6. 

882 Id. at 6–7. 

883 Id. at 7. 

884See SIFMA June 2023 Letter at 6. 

885 Id. See also Citadel July Letter at 32–33. 

886See SIFMA June 2023 Letter at 7. 

887 Id. 

888See FIA Letter at 5. 

889 Id. 

890 Id. 

891See FIF and SIFMA Letter at 4, 5. 

892 Id. at 9–12 (discussing various ‘‘processing 

changes’’ the commenter believes the Commission 

intends to impose, as well as summarizing the 

objections made by the Participants to these 

‘‘changes’’). 

resulting in significant delays.865

Another commenter stated that the 

Operating Committee refuses to engage 

the industry in constructive dialogue, 

instead choosing to file funding 

proposals that are inconsistent with the 

Exchange Act.866 The commenter also 

stated that the CAT Advisory Committee 

has been completely ignored by the 

Operating Committee and that its 

recommendations are non-binding.867

CAT LLC further responded to two 

commenters that stated that CAT LLC 

refused to collaborate with the industry 

in the development of the Proposed 

Amendment.868 CAT LLC stated that it 

has engaged with the industry over the 

last seven years, discussing funding 

model issues with the CAT Advisory 

Committee, holding industry-wide 

webinars on funding issues, and 

meeting with industry associations and 

individual Industry Members to discuss 

funding model issues.869 CAT LLC 

stated that it has ‘‘repeatedly sought the 

views of SIFMA and other industry 

participants on specific aspects of the 

model.’’ 870 CAT LLC listed ideas 

suggested by the industry that it 

adopted in revised versions of the 

funding model 871 and stated ‘‘the 

current model results from years of 

modifications that have been made in 

significant part in response to industry 

comments to earlier versions.’’ 872

The Commission understands that 

Industry Members and other market 

participants have been able to provide 

input into CAT funding through 

meetings with CAT LLC, participation 

in webinars held by CAT LLC on CAT 

costs and potential alternative funding 

models,873 and through the provision of 

comments on the current and prior 

proposed funding models.874 The 

Commission encourages frequent and 

constructive collaboration between the 

industry and CAT LLC. 

b. Implementation 

One commenter suggested that upon 

approval of any CAT funding model, 

Industry Members should be given at 

least a year ‘‘to implement any 

necessary changes to systems and 

processes for them to be able to capture 

their portion of CAT costs.’’ 875 CAT 

LLC responded that it was unlikely to 

take Industry Members a year to 

implement any needed changes, 

particularly given the relatively small 

fees likely to be incurred by most small 

Industry Members that would not 

require extensive new processes to 

pay.876

The Commission acknowledges this 

comment but highlights, as did CAT 

LLC,877 that the Participants have 

entirely funded the CAT to date; in the 

Commission’s view, it is imperative that 

CAT funding be established in a timely 

manner after approval of the Executed 

Share Model. 

c. Rule 613 and the CAT NMS Plan 

Certain commenters stated that the 

CAT as it is structured today is not what 

was contemplated by Rule 613 of 

Regulation NMS.878 One commenter 

recommended that the Commission 

come up with a new structure for the 

CAT.879 The commenter stated that Rule 

613 and the 2016 CAT NMS Plan do not 

support CAT as it is currently 

structured 880 and provided examples 

where it believes that subsequent 

changes to the CAT requested by the 

Commission have caused the CAT to 

become inconsistent with the 

requirements of Rule 613 and the 2016 

CAT NMS Plan.881 According to the 

commenter: (1) Rule 613 requires the 

reporting of certain events and that the 

events must be linked to their 

originating order, but the Commission 

has required the reporting of events that 

are not CAT-reportable and are not 

linked to particular orders (for example, 

Rule 613 requires the reporting of the 

cancellation of an order, but the 

Commission has also required the 

reporting of messages acknowledging 

the receipt of a cancellation request); 882

(2) the Commission expanded the CAT 

to include OTC equities and requestsfor-quotes; 883 (3) the CAT NMS Plan 

contemplates that data will be available 

to the Commission on a T+5 basis, but 

the Commission and staff have insisted 

that certain data be available to the 

Commission for use before T+5; 884 (4) 

Rule 613 requires the reporting of every 

material term of an order, but the 

Commission has also required the 

reporting of the port-level settings 

applicable to all orders sent to a port on 

an exchange.885 The commenter stated 

that these changes to CAT resulted from 

discussions between the Commission 

and the Participants, that such changes 

‘‘significantly increased CAT costs,’’ 

and that Industry Members with ‘‘no 

voice and little transparency’’ into the 

building of the CAT system would be 

allocated most of the increased CAT 

costs.886 The commenter stated that the 

Commission approval of a funding 

proposal for a system that is not 

consistent with Rule 613 and the CAT 

NMS Plan would be arbitrary and 

capricious action.887

Another commenter stated that some 

of the drivers of CAT costs are the 

addition of various new system features 

and reporting requirements that were 

established as the result of discussion 

between Commission staff and the CAT 

Operating Committee.888 The 

commenter stated that some of these 

requirements have been driven by 

‘‘informal reinterpretations’’ of the Plan 

and have resulted in material changes to 

the CAT without proper weighing of 

costs and benefits associated with such 

changes.889 The commenter further 

stated that the Participants should 

confirm that the existing CAT system 

meets the requirements of the Plan, 

before the funding proposal is 

finalized.890

One commenter believes that the 

Commission should require an 

amendment to the CAT NMS Plan for 

new reporting requirements or 

enhancements for which costs and 

benefits were never considered by 

Commission in the economic analysis 

for the approval of the CAT NMS 

Plan.891 This commenter believes that 

the Commission is imposing CAT 

processing requirements that are not 

required by Rule 613 and the CAT NMS 

Plan.892 The commenter further believes 

these ‘‘changes’’ should be subject to 

greater review by the Industry Members 

and the public at large, and therefore 


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893 Id. at 10–11. This commenter also stated that 

there were several ‘‘processing requirements’’ that 

could reduce CAT operating costs and that the 

Commission should direct the Participants to 

analyze these ‘‘processing requirements’’ and make 

that analysis available to the public for discussion. 

Id. at 12–13. 

894See FIF and SIFMA Letter at 13–23 (discussing 

various reporting requirements that the commenter 

does not consider to be within the scope of Rule 

613 and the CAT NMS Plan or believes that 

exemptive relief should be granted because of the 

costs for implementing these requirements, 

including: requiring CAT reporting of verbal 

(unstructured) activity; requiring CAT reporting of 

non-executable RFQ responses; requiring CAT 

reporting of request messages; requiring that an 

order recipient report rejections to CAT; requiring 

an order sender to report venue (order recipient) 

port settings; requiring CAT reporting of linkage of 

representative to customer orders and linkage of 

order fulfillments to representative and principal 

orders; various requirements with respect to CAIS 

reporting; and other CAT reporting requirements 

relating to quoting activity on the OTC Link ATS 

operated by OTC Markets). 

895 Id. at 14. 

896 Id. 

897 Id. 

898See Citadel July Letter at 7. 

899 Id. at 6. 

900 Id. 

901See supra note 2. 

902See Citadel July Letter at 5; see also FIF and 

SIFMA Letter at 24–26. 

903See CAT NMS Plan Approval Order, supra 

note 2. 

904See Citadel July Letter at 12. The commenter 

stated that 2016 figures underestimated such 

implementation costs for larger broker-dealers by 

assuming cost savings would be realized through 

retirement of other reporting systems which haven’t 

been retired yet. Id. at 12–13. 

905 Id. at 13. 

906 Id. at 12. 

907 Id. 

908See Citadel July Letter at 12; id. at 12, n.57. 

909 Id. at 12. 

910 Id. at 15. 

911 Id. at 14–15; see also FIF and SIFMA Letter 

at 24–25. 

912See Citadel July Letter at 15. 

913See MMI July Letter at 6. This commenter did 

not specifically request that the Operating 

Committee update the Rule 613 analysis. 

914See SIFMA June 2023 Letter at 7. 

915See CAT LLC July 2023 Response Letter at 28. 

916See Citadel July Letter at 32–34; FIA Letter at 

3, 4; MMI July Letter at 4. 

917See CAT LLC July 2023 Response Letter at 29. 

918 Id. 

should be filed as amendments to the 

CAT NMS Plan, thereby requiring a 

cost-benefit analysis to be conducted by 

the Commission and public 

disclosure.893 The commenter stated 

that the Commission has mandated 

additional reporting requirements for 

CAT that the commenter does not 

believe to be within the scope of Rule 

613 and the CAT NMS Plan, and that 

these additional reporting requirements 

should be subject to an appropriate costbenefit analysis.894 The commenter 

stated their concern that these reporting 

requirements would be very costly to 

implement and questioned whether the 

surveillance value of these additional 

reporting requirements justified the 

additional costs that will be imposed on 

market participants (and potentially 

passed through to customers).895 The 

commenter further stated that, to the 

extent that these additional reporting 

requirements are found to be within the 

scope of Rule 613 and the CAT NMS 

Plan, the Commission should grant 

exemptive relief with respect to these 

requirements because of the additional 

costs.896 The commenter also stated that 

if the Commission does not grant 

exemptive relief, then the Commission 

should require an amendment to the 

CAT NMS Plan, that sets forth the costs 

and benefits, for each of these additional 

reporting requirements because the 

commenter believes that these reporting 

requirements were not considered as 

part of the cost estimates in the CAT 

NMS Plan.897

Another commenter stated that 

changes and cost overruns have changed 

the structure of the CAT from what was 

contemplated by Rule 613.898 The 

commenter believes that the Operating 

Committee and the Commission have 

engaged in ad-hoc discussions to 

interpret what the Plan requires 

‘‘without adequate notice to Industry 

Members or due consideration of the 

costs and benefits associated with such 

interpretations.’’ 899 The commenter 

stated that the Commission has not 

regularly assessed whether costs 

resulting from a specific interpretation 

of Rule 613 and the CAT NMS Plan 

outweigh benefits.900 The commenter 

requested that the Commission revisit 

its assumptions from the CAT NMS Plan 

Approval Order 901 due to inaccurate 

cost estimates, a failure to retire 

duplicative systems, impracticality of 

technology requirements, a lack of 

effective governance, and a lack of 

processes to consider requests to add 

more data.902

The commenter also stated that the 

Commission must update the economic 

analysis from the CAT NMS Plan 

Approval Order 903 to revise its 

estimates of costs to build and operate 

CAT using actual costs incurred,904 to 

project average annual increases in the 

CAT operating budget,905 and to update 

its analysis of CAT-related costs to be 

borne by Industry Members.906 The 

commenter stated that the 2016 CAT 

NMS Plan lacked a funding model, so 

the Commission did not consider the 

implications of allocating costs to 

Industry Members to build and operate 

the CAT.907 The commenter stated that 

the Proposed Amendment would 

allocate at least 78% and up to 100% of 

costs to Industry Members and a small 

group of Industry Members will pay the 

majority of these costs (and potentially 

both historical and ongoing costs 

simultaneously).908 The commenter 

stated that the proposed allocation 

would have ‘‘dramatic effects’’ on 

market efficiency, competition and 

capital formation,909 stating that ‘‘[t]he 

allocation methodology will have a 

direct and negative impact on market 

efficiency, competition, and capital 

formation, and the Commission must 

comprehensively assess those impacts 

before approving this filing.’’ 910

Additionally, the commenter stated 

that Rule 613 requires the Participants 

to provide an estimate of the costs 

associated with creating, implementing 

and maintaining the CAT, the costs, 

benefits and rationale for the choices 

made in developing the CAT NMS Plan, 

and their own analysis of the plan’s 

impact on competition, efficiency and 

capital formation.911 The commenter 

requested the Commission to require the 

members of the Operating Committee to 

update the analysis required by Rule 

613 in light of a ‘‘massive increase’’ in 

costs since 2016.912 Another commenter 

similarly suggested that additional 

oversight and public review of the 

actual costs and purpose of the CAT is 

called for, and also requested additional 

transparency on the status of legacy 

reporting systems, since their retirement 

could offset some of the CAT fees.913

In response to one commenter that 

stated that Rule 613 and the CAT NMS 

Plan no longer reflect the operation of 

the CAT,914 CAT LLC stated that the 

CAT was implemented in accordance 

with Rule 613 and the CAT NMS Plan 

and that the CAT NMS Plan permits the 

recovery of costs incurred in the 

creation, implementation and 

maintenance of the CAT.915

CAT LLC also responded to comments 

that raised concerns about the 

Commission’s interpretations of CAT 

NMS Plan requirements that were not 

related to the funding model and the 

costs and benefits of those 

interpretations.916 CAT LLC stated that 

the Proposed Amendment is not the 

appropriate forum to resolve 

interpretive questions.917 CAT LLC also 

stated that, for proposed changes to the 

CAT NMS Plan, the Participants are 

following the process in Rule 608 for 

plan amendments and noted that 

material changes to the CAT system 

would require an amendment to the 

CAT NMS Plan,918 but not a material 

change to a technology contract as the 

CAT NMS Plan permits the Operating 


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919 Id. at 30 (citing to Section 4.3 of the CAT NMS 

Plan). 

920See Securities Exchange Act Release No. 

89387 (July 24, 2020), 85 FR 45941 (July 30, 2020); 

Financial Accountability Amendments, supra note 

18. 

921See SIFMA June 2023 Letter at 6, 7, supra 

notes 881–885 and accompanying text; Citadel July 

Letter at 33–35; FIF and SIFMA Letter at 8–23. The 

issues raised by those commenters are either being 

adjudicated in a separate forum or addressed 

through a request for exemptive relief. See Petition 

for Review, USCA Case No. 22–1234; Request for 

Exemption from Certain Provisions of the CAT 

NMS Plan Related to Reporting of Certain Verbal 

Activity, Floor and Upstairs Activity, available at 

https://catnmsplan.com/sites/default/files/2023-03/ 

03.31.23-CAT-Exemption-Request-Verbal-Floorand-Upstairs-Activity.pdf. 22–1234; Request for 

Exemption from Certain Provisions of the CAT 

NMS Plan Related to Reporting of Certain Verbal 

Activity, Floor and Upstairs Activity, available at 

https://catnmsplan.com/sites/default/files/2023-03/ 

03.31.23-CAT-Exemption-Request-Verbal-Floorand-Upstairs-Activity.pdf. 

922See Securities Exchange Act Release No. 

95234 (July 8, 2022), 87 FR 42247 (July 14, 2022). 

923Rule 613(a)(5). 17 CFR 242.613(a)(5). 

924See Rule 608(a)(1). 17 CFR 242.608(a)(1). 

925 17 CFR 242.613(a)(5). 

926See SIFMA June 2023 Letter at 8; Citadel July 

Letter at 28–29; FIA Letter at 3; MMI July Letter at 

2–4. See also MMI July Letter at 1–2. This 

commenter suggested evaluating whether the CAT 

is truly an NMS plan, or if it is better viewed as 

a Commission system whose budget should be 

subject to Congressional approval and oversight. In 

response, CAT LLC stated that this comment is 

outside the scope of the Proposed Amendment. See 

CAT LLC July 2023 Response Letter at 31, n.144. 

927See SIFMA June 2023 Letter at 8; FIA Letter 

at 3; Citadel July Letter at 28, 29. See also MMI July 

Letter at 2–4 (categorizing the CAT as a Commission 

system, required by and dictated by the 

Commission that should be funded in the same way 

as other Commission functions). 

928See SIFMA June 2023 Letter at 8. 

929 Id. See also FIA Letter at 3. 

930See SIFMA June 2023 Letter at 8. 

931 Id. 

932 Id. See also Citadel July Letter at 28, 29. 

933See SIFMA June 2023 Letter at 8. 

934See Citadel July Letter at 29. 

935 Id. at 28. 

936See FIA Letter at 3. 

937 Id. 

938See MMI July Letter at 2, 4. 

939See SIFMA June 2023 Letter at 7–9; Citadel 

July Letter at 28–29; FIA Letter at 3; Virtu Letter at 

2. 

940See CAT LLC July 2023 Response Letter at 31. 

941 Id. at 32. 

942 Id. at 33. 

Committee to enter into, modify or 

terminate a material contract.919

The CAT NMS Plan is consistent with 

Rule 613 and we do not believe that any 

changes have been made that are 

inconsistent with the Plan as approved 

in 2016, as amended in 2020.920 The 

examples provided by commenters of 

changes to the CAT requested by the 

Commission,921 in the Commission’s 

view, were included in the CAT NMS 

Plan approved by the Commission in 

2016.922 Rule 608 and Rule 613 of 

Regulation NMS provide advance notice 

of material changes to the CAT system 

and related costs by requiring changes 

to the CAT NMS Plan to be filed with 

the Commission as an NMS plan 

amendment pursuant to Rule 608 of 

Regulation NMS and thereby be subject 

to notice and comment, and require that 

the Commission consider, in 

determining to approve the amendment, 

the impact of the amendment on 

efficiency, competition and capital 

formation.923 Section 6.9 of the CAT 

NMS Plan does not provide unfettered 

discretion to the CAT Operating 

Committee to make Material 

Amendments to the CAT system. If the 

CAT Operating Committee or the 

Commission wish to impose additional 

requirements to the CAT NMS Plan, 

such requirements must be proposed 

through an amendment to the CAT NMS 

Plan, filed under Rule 608 of Regulation 

NMS. Such amendments must be 

published for notice and comment.924

Additionally, Rule 613(a)(5) of 

Regulation NMS 925 requires the 

Commission to consider, in determining 

whether to approve an amendment to 

the CAT NMS Plan, the impact of the 

amendment on efficiency, competition 

and capital formation; therefore, this 

Order contains an analysis of the 

Proposed Amendment’s impact on 

efficiency, competition, and capital 

formation. 

d. Funding in the Appropriation Process 

Certain commenters believe that 

funding for the CAT should be 

accomplished through Congressional 

appropriations.926 These commenters 

characterized the CAT as a Commission 

tool for law enforcement.927 One 

commenter stated that the Proposed 

Amendment would ‘‘evade’’ 928 the 

separation of powers established by the 

Constitution, arguing that since the CAT 

is a ‘‘Commission system used for 

enforcement’’ 929 and that law 

enforcement ‘‘is an executive 

prerogative,’’ 930 Congress must approve 

public funds to build the CAT through 

the appropriations process.931 The 

commenter stated ‘‘[t]he Constitution 

does not permit the Commission to fund 

its own enforcement apparatus through 

the backdoor—to require the SROs to 

raise and spend hundreds of millions of 

dollars to build a new law enforcement 

tool for the Commission.’’ 932 The 

commenter also stated that the 

assessment of ‘‘retroactive liability for 

monies spent that private parties had no 

control over’’ for public purposes would 

violate the Fifth Amendment Takings 

Clause.933

Another commenter stated that the 

Proposed Amendment is 

unconstitutional because it would 

require Industry Members to provide the 

Operating Committee with a blank 

check to fund 100% of costs in 

perpetuity for a law enforcement tool 

designed for the Commission that has 

not been authorized by Congress.934 The 

commenter also stated that requiring the 

Participants to build ‘‘a multi-billion 

dollar enforcement tool’’ is beyond the 

scope of Section 11A’s authorization to 

the Commission to require SROs to act 

jointly or facilitate the development of 

a national market system.935 Another 

commenter stated that the Commission 

has directed the development of CAT to 

supplement the government’s 

surveillance program while the Funding 

Proposal effectively places all or most of 

the costs of the CAT on the Industry 

Members, who have no voice in its 

control or development.936 The 

commenter states that these costs are 

essentially a tax on the industry from an 

agency and should require 

Congressional oversight.937

Additionally, one commenter suggested 

the treatment of the CAT budget in 

terms of accounting and transparency as 

a Commission system, and a cap on the 

budget for CAT which, if exceeded, 

would trigger Congressional budget 

oversight.938

In response to recent comments 

expressing concern that the Industry 

Member allocation would raise 

constitutional issues,939 CAT LLC stated 

that the first commenter to raise this 

issue had never once before challenged 

the constitutionality of Rule 613 or the 

CAT NMS Plan.940 CAT LLC stated 

‘‘SIFMA’s strategic decision to inundate 

the Commission with these arguments— 

which directly contradict its prior 

statements that industry contributions 

are ‘justifiable under the Exchange 

Act’—just two days before a scheduled 

SEC Open Meeting to consider the 

Funding Proposal suggests their 

ultimate strategy is to delay the 

Commission’s review and approval of 

any funding model that would require 

the industry to contribute to the funding 

of the CAT.’’ 941 CAT LLC urged the 

Commission to not let the commenter 

further delay a decision on the Proposed 

Amendment by filing comments that it 

could have submitted years before.942

CAT LLC also noted that, despite the 

commenter’s argument that requiring 

Industry Members to contribute to CAT 

costs was a constitutional takings 

problem, the commenter had suggested 

a funding model for the CAT based on 

a 50%-50% allocation of costs divided 

among Participants and Industry 


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943 Id. at 31. See also SIFMA May 2023 Letter at 

2; supra note 101 and accompanying text. 

944See CAT LLC July 2023 Response Letter at 33. 

945See SIFMA June 2023 Letter at 8; FIA Letter 

at 3; Citadel July Letter at 28, 29. See also MMI July 

Letter at 2–4 (categorizing the CAT as a Commission 

system, required by and dictated by the 

Commission that should be funded in the same way 

as other Commission functions). 

946See Securities Exchange Act Release No. 

67457 (July 18, 2012), 77 FR 45722 (Aug. 1, 2012) 

(‘‘CAT Adopting Release’’) at 45727. 

947See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84727, 84800. 

948See Securities Exchange Act Release No. 

50700 (Nov. 18, 2004), 69 FR 71255 (Dec. 8, 2004) 

(‘‘Concept Release Concerning Self-Regulation’’). 

949 Id., citing S. Rep. No. 1455, 73d Cong., 2d 

Sess. (1934); H.R. Doc. No. 1383, 73d Cong., 2d 

Sess. (1934); S. Rep. No. 1455, 73d Cong., 2d Sess. 

(1934).; see also S. Rep. No. 94–75, 94th Cong., 1st 

Sess. 7, II (1975) (stating that a principal reason for 

retaining a self-regulatory regime was the ‘‘sheer 

ineffectiveness of attempting to assure [regulation] 

directly through the government on a wide scale’’) 

950See Concept Release on Self-Regulation, supra 

note 948, 69 FR at 71256–57. 

951See e.g., Exchange Act Amendments of 1975, 

Pubic Law 29, 89 Stat. 97 (1975); 1961–1963 Special 

Study of Securities Markets. Securities and 

Exchange Commission, Report of Special Study of 

Securities Markets, (‘‘Special Study’’), H.R. Doc. No. 

95, 88th Cong., 1st Sess. (1963) and Market 2000: 

An Examination of Current Equity Market 

Developments, Division of Market Regulation, U.S. 

Securities and Exchange Commission (January 

1994) (‘‘Market 2000 Report’’). 

952See Todd & Co. v. SEC, 557 F.2d 1008, 1012– 

13 (3d Cir. 1977); First Jersey Sec., Inc. v. Bergen, 

605 F.2d 690, 697 (3d Cir. 1979); Sorrell v. SEC, 679 

F.2d 1323, 1325–26 (9th Cir. 1982); R.H. Johnson & 

Co. v. SEC, 198 F.2d 690, 695 (2d Cir. 1952); see 

generally Oklahoma v. United States, 62 F.4th 221, 

229 (6th Cir. 2023). 

953See Concept Release Concerning SelfRegulation, supra note 948, 69 FR at 71268–69, 

citing Exchange Act Section 6(b)(4), 15 U.S.C. 

78f(b)(4); Exchange Act Section 15A(b)(5), 15 U.S.C. 

78o–3(b)(5); Exchange Act Section 15A(b)(2) and 

6(b)(1) 15 U.S.C. 78o–3(b)(2) and 78f(b)(1).] 

954For these reasons, we disagree with the 

assertion of commenters that the Fifth Circuit’s 

reasoning in Cmty. Fin. Servs. Ass’n of Am., Ltd. v. 

CFPB, 51 F.4th 616, 642 (5th Cir. 2022), cert. 

granted sub nom. CFPB v. Com. Fin. Servs. Ass’n, 

U.S. (Feb. 27, 2023), casts doubt on the 

constitutionality of CAT. The holding in that case 

rested on the court’s view that the CFPB’s 

‘‘perpetual self-directed, double-insulated funding 

structure’’ was ‘‘unprecedented’’ for an agency that 

‘‘wields vast rulemaking, enforcement, and 

adjudicatory authority.’’ See also CFPB v. Law 

Offices of Crystal Maroney, 63 F.4th174, 181–83 

(2d. Cir. 2023) (disagreeing with Fifth Circuit’s 

reasoning and rejecting challenge to CFPB’s funding 

structure). 

955See Cincinnati Soap Co. v. United States, 301 

U.S. 308, 321 (1937); see also Off. Of Pers. Mgmt. 

v. Richmond, 496 U.S. 414, 424 (1990) (The 

Appropriations Clause requires that ‘‘the payment 

of money from the Treasury must be authorized by 

a statute.’’). 

956See Penn Central Transp. Co. v. New York 

City, 438 U.S. 104, 124 (1978). 

957See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84727. 

958See 15 U.S.C. 78b, 78c(b), 78e, 78f, 78k–1, 78o, 

78o–3; cf. Nasdaq Stock Mkt. LLC v. SEC, 38 F.4th 

1126, 1131 (D.C. Cir. 2022) (explaining that 

Congress granted the Commission ‘‘ ‘broad, 

discretionary powers’ to ensure ‘maximum 

flexibility’ in ‘oversee[ing] the development of a 

national market system’ and ‘implement[ing] its 

specific components in accordance with the 

findings and . . . objectives’ of the legislation,’’ 

quoting S. Rep. 94–75, at 7 (1975)). 

959See, e.g., Sections 6(b)(1), 19(g)(1) and 

15A(b)(2) of the Exchange Act, 15 U.S.C. 78f(b)(1), 

78s(g)(1), and 78o–3(b)(2). 

960See, e.g., Sections 2, 6(b), 15A(b), and 19(h)(1) 

of the Exchange Act, 15 U.S.C. 78b, 15 U.S.C. 78f(b), 

15 U.S.C. 78o–3(b), and 15 U.S.C. 78s(h)(1). 

Members.943 CAT LLC stated that 

regardless of how this issue is resolved, 

the Participants should be able to 

recover their investment in CAT 

because Rule 613 and the CAT NMS 

Plan contemplate Industry Member 

contributions to CAT funding.944

In characterizing CAT as solely a 

‘‘Commission tool used for 

enforcement,’’ these comments 

misunderstand its purposes.945 CAT 

serves multiple regulatory purposes for 

both SROs and the Commission. SROs 

have long had audit trail systems and 

the SROs themselves, as well as the 

Commission, have long used the market 

data from those systems to oversee the 

securities markets and fulfill their 

responsibilities under federal securities 

laws.946 In directing the SROs to file an 

NMS plan establishing the CAT, the 

Commission sought to address 

shortcomings in those existing systems 

and create an audit trail system that 

would provide both the SROs and the 

Commission with timely access to a 

comprehensive set of trading data 

sufficient to oversee modern markets. 

And in approving the CAT NMS Plan, 

the Commission determined that the 

Plan would substantially improve the 

ability of both the SROs and the 

Commission to perform these regulatory 

activities to the benefit of investors and 

markets.947

In this respect, the CAT’s regulatory 

and enforcement utility to the SROs as 

well as the Commission is similar to 

many of the SROs’ other self-regulatory 

functions that are funded in part by 

Industry Members. And this dual 

purpose is consistent with the long 

history of SRO and Commission 

oversight of the securities markets. Selfregulation in the securities industry 

predates the securities laws and, in 

enacting the Exchange Act in 1934, 

Congress formalized this structure, 

purposefully determining to rely on selfregulation as a fundamental component 

of U.S. market and broker-dealer 

regulation.948 Among other things, 

Congress determined that effectively 

regulating the inner-workings of the 

securities industry at the federal level 

was cost prohibitive and inefficient.949

And industry participants preferred the 

less invasive regulation by their peers to 

direct government regulation.950

Congress and the Commission have 

repeatedly reaffirmed that decision in 

the years since.951 And Courts have 

repeatedly affirmed the constitutionality 

of this system of self-regulation.952 As 

contemplated by Congress, the SROs 

have also long funded their frontline 

responsibility to supervise their 

members’ compliance with their own 

rules and the federal securities laws, 

subject to Commission oversight, 

through fees on those members.953 The 

participation of Industry Members in 

the funding of CAT is no different. 

The assertion by commenters that the 

funding of the CAT violates the 

Appropriations Clause or other 

constitutional limitations thus lacks 

merit. The funding of an initiative, such 

as CAT, that has utility to both the SROs 

and the Commission does not implicate 

the Appropriations Clause in the 

manner that has been questioned in 

courts.954 As the Supreme Court has 

stated, that clause ‘‘means simply that 

no money can be paid out of the 

Treasury unless it has been 

appropriated by an act of Congress.’’ 955

The use of SRO and Industry Member 

funding for a self-regulatory initiative— 

which, as discussed below, falls within 

the authority provided by Congress— 

does not transgress that principle. 

Nor does Industry Members’ 

participation in CAT funding implicate 

the Takings Clause. In choosing to 

participate in the securities industry, 

Industry Members could not have had 

any ‘‘distinct investment-backed 

expectations’’ 956 that they would not 

have to share in funding regulatory 

initiatives such as development and 

maintenance of a consolidated audit 

trail for tracking securities trading, the 

purpose of which is to ‘‘strengthen the 

integrity and efficiency of the markets’’ 

and thus ‘‘enhance investor protection 

and increase capital formation.’’ 957

Finally, the creation of CAT falls 

within the Commission’s authority 

under the Exchange Act.958 Pursuant to 

that Act, each national securities 

exchange and national securities 

association must be organized and have 

the capacity to comply, and enforce 

compliance by its members, with its 

rules, and with the federal securities 

laws, rules, and regulations.959 And, 

among other things, the Commission has 

a responsibility to oversee those 

organizations and to enforce compliance 

by the members of exchanges and 

associations with the respective 

exchange’s or association’s rules, and 

the federal securities laws and 

regulations.960 Congress has also 

charged the Commission with 

‘‘insur[ing] the maintenance of fair and 


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961See Section 2 of the Exchange Act, 15 U.S.C. 

78b. 

962 Id. 

963Section 23(a)(1) of the Exchange Act. 

964Section 11A of the Exchange Act, 15 U.S.C. 

78k–1. 

965 15 U.S.C. 78k–1(a)(1). 

966 15 U.S.C. 78k–1(a)(3)(B). 

967See Securities Exchange Act Release No. 

61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21, 2010) 

at 3597. 

968See CAT Adopting Release, supra note 946. 

Indeed, many SROs, in commenting on that rule, 

recognized the essential nature of the project. Id. at 

45736, quoting Letter from Marcia E. Asquith, 

Senior Vice President and Corporate Secretary, 

FINRA, and Janet McGinness Kissane, Senior Vice 

President and Corporate Secretary, NYSE Euronext, 

to Elizabeth M. Murphy, Secretary, Commission, 

dated August 9, 2010 (‘‘the evolution of the U.S. 

equity markets and the technological advancements 

that have recently taken place have created an 

environment where a consolidated audit trail is 

now essential to ensuring the proper surveillance of 

the securities markets and maintaining the 

confidence of investors in those markets.’’). 

969See Securities Exchange Act Release No. 

62174 (May 26, 2010), 75 FR 32556 (June 8, 2010) 

(‘‘CAT Proposing Release’’). Even prior to proposing 

the creation of the CAT in 2010, the Commission 

had twice requested comment regarding how best 

to enhance the capability of SROs and the 

Commission to effectively and efficiently conduct 

cross-market supervision of trading activity. See 

Securities Exchange Act Release No. 47849 (May 

14, 2003), 68 FR 27722 (May 20, 2003) (File No. S7– 

11–03) (‘‘Intermarket Trading Concept Release’’) 

and Concept Release Concerning Self-Regulation. 

970See CAT Adopting Release, supra note 946, 77 

FR at 45727; see also CAT NMS Plan Approval 

Order, supra note 2, 81 FR at 84727, 84738, 84800. 

971West Virginia v. EPA, 142 S. Ct. 2587, 2608– 

10 (2022) (quotation omitted). 

972Alabama Ass’n of Realtors v. HHS, 141 S. Ct. 

2485, 2489 (2021) (per curiam). 973See CAT Adopting Release, supra note 946, 77 

FR at 45723. 974Contra Biden v. Nebraska, 143 S. Ct. 2355, 

2372, 2375 (2023), 143 S.Ct. 2355, 2372, 2375 

(2023). 975See SIFMA June 2023 Letter at 4, 9; Citadel 

July Letter at 15. 976See SIFMA June 2023 Letter at 9. 977 Id. 978 Id. 979 Id. at 9, n.45. 

honest markets,’’ removing 

‘‘impediments to’’ and perfecting ‘‘the 

mechanisms of a national market system 

for securities’’ and ‘‘provid[ing] for 

regulation and control of’’ transactions 

on securities exchanges and the overthe-counter market.961 In furtherance of 

these responsibilities, Congress 

authorized the Commission to ‘‘impose 

requirements necessary to make such 

regulation and control reasonably 

complete and effective’’ 962 as well as to 

make such rules and regulations ‘‘as 

may be necessary or appropriate to 

implement the provisions’’ of the 

Exchange Act.963

More recently, Congress also directed 

the Commission to facilitate the 

establishment of a national market 

system in accordance with specified 

findings and objectives.964 The initial 

Congressional findings were that the 

securities markets are an important 

national asset that must be preserved 

and strengthened, and that new data 

processing and communications 

techniques create the opportunity for 

more efficient and effective market 

operations.965 Congress then proceeded 

to mandate a national market system 

composed of multiple competing 

markets that are linked through 

technology, directing the Commission to 

‘‘use its authority under [the Exchange 

Act] to facilitate the establishment of a 

national market system,’’ including ‘‘by 

rule’’ ‘‘to authorize or require selfregulatory organizations to act jointly 

with respect to matters as to which they 

share authority under [the Exchange 

Act] in planning, developing, operating, 

or regulation a national market 

system.’’ 966

The creation of the CAT was an 

appropriate exercise of this authority. 

The Commission’s task pursuant to the 

mandate in Section 11A has been to 

facilitate an appropriately balanced 

market structure that promotes 

competition among markets, while 

minimizing the potentially adverse 

effects of fragmentation. An 

appropriately balanced market structure 

also must provide for strong investor 

protection.967 As the Commission 

explained in adopting Rule 613, the 

creation of a consolidated audit trail 

with the ability to surveil cross-market 

activity had become key to the ability of 

both the SROs and the Commission to 

perform many of their core regulatory 

functions in the modern iteration of the 

national market system.968 While the 

SROs and the Commission relied on 

existing audit trails and data in fulfilling 

their regulatory responsibilities prior to 

CAT, each of those systems had its own 

flaws and drawbacks, and there was a 

significant disparity in the audit trail 

requirements among the exchanges and 

FINRA. At the same time, the rapid 

change to fast, electronic markets on 

which trading was dispersed across 

market centers gave rise to an increasing 

need to a more uniform audit trail with 

cross-market compatibility.969 The 

establishment of the CAT thus enabled 

the SROs and the Commission to more 

efficiently and effectively perform their 

respective regulatory responsibilities, 

including to analyze and reconstruct 

market events, monitor market behavior, 

conduct market analysis to support 

regulatory decisions, and perform 

surveillance, investigation, and 

enforcement activities.970

Contrary to one commenter’s 

suggestion, the Supreme Court’s major 

questions doctrine is not implicated 

here. In directing the SROs to act jointly 

to create an accurate, complete, 

accessible and timely audit trail to 

replace these existing audit trails, the 

Commission did not claim an 

‘‘[e]xtraordinary grant[ ] of regulatory 

authority’’ based on ‘‘vague,’’ ‘‘cryptic,’’ 

‘‘ancillary,’’ or ‘‘modest’’ statutory 

language.971 Nor did it assert authority 

that falls outside its ‘‘particular 

domain.’’ 972 And, while CAT is 

undoubtedly a large database, that is a 

function of the size of the ‘‘complex, 

dispersed, and highly automated 

national market system’’ 973 Congress 

expressly charged the SROs and the 

Commission with overseeing. As 

detailed above, the collection of 

securities transaction data by the SROs 

and the Commission is an important 

factor in enabling both to fulfill their 

statutory responsibilities and has a long 

history. There is no reason to question 

that Congress would have intended for 

the Commission to address the serious 

shortcomings and regulatory obstacles 

associated with the lack of a 

consolidated audit trail. And there is 

therefore no basis for dispensing with 

ordinary principles of statutory 

construction to require express 

authorization for CAT by Congress.974

e. Rule 608 and Rule 19b–4 

Certain commenters believe the 

assessment of CAT fees on Industry 

Members through filings submitted by 

each exchange under Rule 19b–4 is 

likely inconsistent with Rule 608.975

One commenter stated that the 

Commission amended Rule 608 in 2020 

to remove the effective-upon-filing 

procedure for NMS plan fees by 

requiring that NMS plan fees be subject 

to notice and comment and Commission 

approval prior to becoming effective.976

The commenter also stated that the 2020 

amendment specifically contemplates 

that CAT fees would be subject to Rule 

608,977 however the Commission was 

considering approving a process for 

CAT fees that would not permit a 

meaningful review opportunity, 

contrary to the Rule 608 amendment.978

The commenter acknowledged that the 

CAT NMS Plan provides for Section 

19(b) fee filings but also stated that (1) 

the CAT NMS Plan was approved prior 

to the amendment of Rule 608 in 2020 

and (2) the CAT NMS Plan is silent 

about whether Section 19(b) fee filings 

would need to be made after the 

Operating Committee receives approval 

to assess the fees under Rule 608.979 The 

commenter suggested that due to the 

‘‘infirmities with the process for 

establishing and assessing CAT Fees 


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980 Id. 

981See Citadel July Letter at 15. 

982See SIFMA June 2023 Letter at 9. 

983See CAT LLC July 2023 Response Letter at 30. 

984 Id. 

985 Id. 

986 Id. at 31. 

987 Id. 

988 17 CFR 242.608(c). See also CAT NMS Plan 

at Section 3.11 (requiring each Participant to 

comply with and enforce compliance, as required 

by Rule 608(c), by its Industry Members with the 

provisions of Rule 613 and the CAT NMS Plan). 

989 17 CFR 242.613(g)(1). 

990 17 CFR 242.613(g)(2). 

991 17 CFR 242.613(g)(3). 

992 17 CFR 242.613(g)(4). 

993See Securities Exchange Act Release No. 

80256 (Mar. 15, 2017), 82 FR 14526 (Mar. 21, 2017). 

994 17 CFR 242.608(b)(3)(i). 

995See Securities Exchange Act Release No. 

89618 (Aug. 19, 2020), 85 FR 65470, 65471 (Oct. 15, 

2020). 

996See, e.g., UTP Plan Subscriber Agreement, 

available at https://www.utpplan.com/DOC/ 

subagreement.pdf; Second Restatement of the Plan 

Submitted to the Securities and Exchange 

Commission Pursuant to Rule 11Aa3–1 under the 

Securities Exchange Act of 1934, composite as of 

June 3, 2021, available at https://www.ctaplan.com/ 

publicdocs/ctaplan/notifications/trader-update/ 

110000358917/CTA%20Plan%20- 

%20Composite%20as%20of%20

June%203,%202021.pdf, at Exhibit C (Form of 

Vendor Contract); at Exhibit D (Form of Subscriber 

Contracts). 

997 15 U.S.C. 78s(b)(3)(A). 998 Id. See also 17 CFR 240.19b–4(f)(2). See also 

supra notes 192–196 and accompanying text. 999See Citadel July Letter at 5, 6. 1000 Id. at 6. 

1001See id. 

1002 Id. 

1003 Id. at 6–7; id. at n.14. 

under the Funding Proposal,’’ the 

Operating Committee must create a new 

funding process consistent with Rule 

608 and stated that the Commission 

cannot find that the Proposed 

Amendment is consistent with the 

Exchange Act.980 Another commenter 

stated that the proposed approach seems 

inconsistent with recent Commission 

rulemaking to ensure that fee filings 

related to an NMS plan can no longer be 

effective upon filing.981

In response to one commenter that 

stated that the filing of Industry Member 

CAT fees under Rule 19b–4 likely 

violates Rule 608 of Regulation NMS,982

CAT LLC stated that it disagreed with 

the comment because the Proposed 

Amendment complies with Rule 608.983

CAT LLC stated that Section 11.1(b) of 

the CAT NMS Plan requires the 

Participants to file Industry Member 

CAT fees pursuant to Section 19(b) of 

the Exchange Act,984 and Section 19(b) 

permits fees to become effective upon 

filing.985 CAT LLC also noted that the 

funding methodology for Participant 

fees would be established through the 

Proposed Amendment, which was filed 

in accordance with Rule 608; therefore, 

Participant CAT fees would be adopted 

in accordance with Rule 608.986 CAT 

LLC stated that Industry Member CAT 

fees would be filed pursuant to Rule 

19b–4 and those filings would be based 

on the Proposed Amendment, which 

would have to be approved pursuant to 

Rule 608, therefore ‘‘any Industry 

Member CAT fees will have been 

subject to the same extensive notice and 

comment process as Participant CAT 

fees and must satisfy the requirements 

of the Exchange Act.’’ 987

The Commission disagrees with the 

commenters’ position. The filing of 

Industry Member CAT fees under Rule 

19b–4 is consistent with the structure of 

the CAT. The CAT NMS Plan functions 

as a joint agreement amongst the SROs 

who are parties to the CAT NMS Plan. 

But Industry Members are not parties to 

the Plan and the Plan itself does not 

bind Industry Members. Rather, Rule 

608(c) of Regulation NMS requires each 

SRO to enforce compliance by its 

members with an effective NMS plan of 

which it is a sponsor or a participant.988

Additionally, Rule 613(g) requires: (1) 

each SRO plan sponsor to file a 

proposed rule change to require its 

members to comply with Rule 613 and 

the CAT NMS Plan pursuant to Section 

19(b)(2) of the Exchange Act and Rule 

19b–4 thereunder; 989 (2) each member 

of an SRO plan sponsor to comply with 

the CAT NMS Plan; 990 (3) each SRO 

plan sponsor to agree to enforce 

compliance by its members with the 

CAT NMS Plan; 991 and (4) the CAT 

NMS Plan to include a mechanism to 

ensure compliance with the CAT NMS 

Plan.992 Thus, Industry Members’ CAT 

reporting requirements stem from rules 

the Participants put in place for their 

members pursuant to the Section 

19(b)(2) rule filing process.993

The amendments to Rule 608 

(‘‘Rescission of Effective-Upon-Filing 

Procedure for NMS Plan Fee 

Amendments’’), among other things, 

rescinded Rule 608(b)(3)(i),994 a 

provision that permitted fee changes 

assessed under NMS plans to become 

effective-upon-filing, and required NMS 

Plan fee amendments to be filed 

pursuant to Rule 608(b)(1) and (2), thus 

mandating an opportunity for public 

comment and Commission approval by 

order before the effectiveness of such 

fees.995 Vendors and subscribers of 

market data under the Market Data 

Plans are subject to vendor or 

subscribers’ fees charged by the 

applicable NMS Plan and filed by the 

NMS Plan using Rule 608. As these 

vendors and subscribers are not parties 

to the NMS Plans, the mechanism by 

which fees are imposed on them is 

contractual. Specifically, in order to 

receive market data under the NMS 

Plans, vendors and subscribers must 

individually enter into a vendor and/or 

a subscription agreement under which 

they agree to pay fees.996 The rescission 

impacted the way the Commission 

considers fees imposed on vendors and 

subscribers of market data under Market 

Data Plans since their fees are filed by 

the NMS Plans pursuant to Rule 608. 

In contrast, all Industry Members who 

are CAT Reporters are members of at 

least one Participant. Industry Members 

are bound by the rules of the 

Participant(s) of which they are 

members. The process for adopting rules 

of a Participant that affect their 

members is through the Section 19(b) 

rule filing process, which includes the 

ability to adopt immediately-effective 

fees.997 Additionally, fees filed by the 

Section 19(b) rule filing process are still 

subject to public notice and comment, 

and the Commission may suspend and 

institute proceedings on these filings.998

For these reasons, the Commission does 

not believe that the Rescission of 

Effective-Upon-Filing Procedure for 

NMS Plan Fee Amendments impacts the 

CAT NMS Plan provisions relating to 

how Industry Member fees are filed 

with the Commission. 

f. Governance 

One commenter stated that the CAT 

governance structure is flawed because 

exchange groups with multiple affiliated 

exchanges have ‘‘significant influence’’ 

over the Operating Committee and can 

‘‘dictate many CAT-related decisions’’ 

such as the allocation of CAT costs.999

The commenter further stated that 

Industry Members lack representation 

on the Operating Committee; therefore, 

they cannot vote on the design, 

implementation or funding of the 

CAT.1000 The commenter stated that the 

governance structure results in the 

allocation of all CAT costs to Industry 

Members.1001 Additionally, the 

commenter believes the governance 

structure permits the Operating 

Committee to provide minimal 

information on the costs to be allocated 

to Industry Members,1002 stating that the 

financial information that has been 

provided by the Operating Committee 

through audited financial statements 

and an annual financial and operating 

budget is disclosed in broad categories 

and lacks detail about the key drivers of 

the costs, and that the annual financial 

and operating budget does not predict 

costs accurately.1003 Based on this lack 

of detail, the commenter stated that 

market participants cannot assess 


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1004See Citadel July Letter at 7. 

1005 Id. at 2. See also id. at 23 (stating Section 

6(b)(4), Section 6(b)(5) and Section 6(b)(8) of the 

Exchange Act do not allow a private entity to 

require Industry Members to provide a blank check 

in perpetuity because this is not an equitable 

allocation of reasonable fees and would greatly 

harm market competition, efficiency and liquidity). 

1006 Id. at 7. 

1007 Id. See also MMI July Letter at 4 (suggesting 

‘‘[i]ncentivization of cost-consciousness and 

accountability for SEC interpretations and mandates 

for CAT reporting specifications, interpretations, 

and usage of CAT.’’). 

1008See Citadel July Letter at 34. 

1009 Id. at 3, 34. 

1010 Id. See also MMI July Letter at 1, 2 

(requesting the Commission require Industry 

Member representation on the Operating Committee 

before approving any funding proposal, with 

SIFMA acting as the broker representative); FIA 

Letter at 4 (stating that the CAT Operating 

Committee should be reconfigured, with Industry 

Members comprising the percentage of the 

Committee equivalent to whatever cost allocation 

percentage is eventually allocated to them). 

1011See Citadel July Letter at 34. In response, 

CAT LLC stated that this comment is outside the 

scope of the Proposed Amendment. See CAT LLC 

July 2023 Response Letter at 31, n.144. 

1012See FIA Letter at 4; Citadel July Letter at 34; 

MMI July Letter at 2. 1013See CAT LLC July 2023 Response Letter at 21. 1014 Id. 1015 Id. 1016 Id. 1017See Citadel July Letter at 34. 1018See CAT LLC July 2023 Response Letter at 

21–22. 1019See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84728–30. 1020See The NASDAQ Stock Market LLC et al. v. 

SEC, Case No. 21–1167, D.C. Cir. (July 5, 2022). 15 

U.S.C. 78k–1. 

1021See CAT NMS Plan, supra note 2, at Section 

4.13. See also 17 CFR 242.613(b)(7). 

1022See Citadel July Letter at 3, 35; SIFMA June 

2023 Letter at 2; Virtu Letter at 4. 

1023See Citadel July Letter at 3, 35; see Securities 

Exchange Act Release No. 89632 (Aug. 21, 2020), 

85 FR 65990 (Oct. 16, 2020). Two other commenters 

stated that the Commission has failed to address 

data security concerns associated with the CAT. See 

SIFMA June 2023 Letter at 2; Virtu Letter at 4. 

1024See SIFMA June 2023 Letter at 3; Citadel July 

Letter at n.54 and 113; see Exchange Act Release 

Nos. 96496, 88 FR 5440 (Jan. 27, 2023) (Regulation 

Best Execution); 96495, 88 FR 128 (Jan. 3, 2023) 

(Order Competition Rule); 96494, 87 FR 80266 (Dec. 

29, 2022) (Minimum Pricing Increments); 96493, 88 

FR 3786 (Jan. 20, 2023) (Order Execution 

Information). 

1025See SIFMA June 2023 Letter at 3. 

1026 Id. See also Virtu Letter at 4. 

1027See SIFMA June 2023 Letter at 3. 

whether total CAT costs are reasonable 

and cannot suggest cost-saving 

alternatives and must rely on the 

Operating Committee to contain the 

budget.1004 The commenter stated, ‘‘[i]t 

is clearly inequitable to compel Industry 

Members to provide a blank check to 

fund these spiraling costs in perpetuity, 

without any governance role or any plan 

to contain overall costs,’’ 1005 and that 

allocating all CAT costs to firms without 

representation ‘‘marginalize[s] costrelated considerations.’’ 1006 The 

commenter also stated that the 

governance structure does not require 

the Operating Committee or the 

Commission to assess whether the costs 

of a specific interpretation of the Plan 

outweigh any benefits.1007

The commenter recommended the 

following enhancements to improve 

CAT governance: (1) each exchange 

group and national securities 

association should have one vote on the 

Operating Committee, but will have a 

second vote if ‘‘the exchange group or 

national securities association has a 

market center or centers that trade more 

than 15 percent of consolidated equity 

and options market share;’’ 1008 (2) all 

actions related to funding by the 

Operating Committee should be 

authorized by supermajority vote; 1009

and (3) Industry Members should have 

voting representation on the Operating 

Committee commensurate with the costs 

allocated to them.1010 The commenter 

stated that if industry representation 

cannot be achieved through an NMS 

plan, the plan is not an appropriate 

vehicle for CAT governance.1011

In response to comments objecting to 

a lack of Industry Member voting 

representation on the Operating 

Committee and suggesting their 

inclusion based on the proportion of 

costs allocated to them,1012 CAT LLC 

stated that the addition of Industry 

Member voting representation is not 

consistent with the Exchange Act.1013

CAT LLC stated that ‘‘allowing Industry 

Members to control CAT LLC as the 

commenters suggest could adversely 

affect the regulatory objectives of the 

CAT’’ 1014 as Industry Members ‘‘have 

no statutory obligation to protect 

investors or to act in the public interest, 

nor do they have any regulatory 

obligation to operate the CAT System in 

a manner that is consistent with the 

Rule 613 and the CAT NMS Plan.’’ 1015

CAT LLC stated that Industry Members 

can provide input through Plan 

amendments and fee filings and the 

CAT Advisory Committee.1016

In response to a comment suggesting 

changes to the allocation of Participant 

voting rights,1017 CAT LLC stated that 

this issue is beyond the scope of the 

CAT funding model. CAT LLC also 

responded to the commenter’s 

suggestion that all funding actions by 

the Operating Committee require a 

supermajority vote by stating that it 

disagreed with the suggestion because 

all Operating Committee actions relate 

in a way to CAT costs; therefore, 

imposing a supermajority requirement 

could undermine governance.1018

Regarding SRO and Industry Member 

voting rights, the Commission does not 

believe that modification of the voting 

rights, which the Commission 

considered when it approved the CAT 

NMS Plan, is within the scope of the 

Proposed Amendment.1019 Furthermore, 

in response to those comments 

suggesting the addition of Industry 

Members as voting members on the 

operating committee, we note that—in 

vacating the Order Approving the CT 

Plan—the D.C. Circuit concluded that 

the inclusion of non-SRO representation 

on the operating committee of the CT 

Plan was inconsistent with Section 11A 

of the Exchange Act.1020 Industry 

Members do have an opportunity to 

attend meetings of the Operating 

Committee through the CAT Advisory 

Committee. According to Section 

4.13(d) of the CAT NMS Plan, 

‘‘[m]embers of the Advisory Committee 

shall have the right to attend meetings 

of the Operating Committee or any 

Subcommittee, to receive information 

concerning the operation of the Central 

Repository (subject to Section 4.13(e)), 

and to submit their views to the 

Operating Committee or any 

Subcommittee on matters pursuant to 

[the CAT NMS Plan] prior to a decision 

by the Operating Committee on such 

matters.1021

g. Miscellaneous 

Certain commenters urged the 

Commission to address data security 

concerns associated with the CAT.1022

One commenter suggested that the 

Commission prioritize finalizing the 

proposed amendments to the CAT NMS 

Plan to enhance data security.1023

Commenters also raised concerns that 

the Commission was considering the 

Proposed Amendment at the same time 

it is considering modifying certain 

Commission rules governing equity 

market structure.1024

One commenter expressed concern 

that the Commission would approve the 

Proposed Amendment prematurely 

without careful consideration.1025 The 

commenter also stated that the 

Commission is ‘‘rushing forward to 

approve the latest proposal without 

taking advantage of the allotted time 

under the Exchange Act for careful 

consideration’’ and ‘‘prematurely 

moving forward’’ while simultaneously 

considering revisions of the rules 

governing equity and options market 

structure and proceeding with other 

proposals that will impose costs on 

Industry Members.1026 The commenter 

stated that ‘‘[t]he unequitable 

distribution of CAT costs contemplated 

by the Funding Proposal will exacerbate 

these problems, harming the functioning 

of U.S. securities markets.’’ 1027 The 


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1028 Id. 

1029See Citadel July Letter at 35; SIFMA June 

2023 Letter at 2; Virtu Letter at 4. 

1030See CAT LLC July 2023 Response Letter at 33. 

1031 Id. 

1032See Citadel July Letter at 26, n.112; SIFMA 

June 2023 Letter at 3; Virtu Letter at 4. 

1033See CAT LLC July 2023 Response Letter at 34. 

1034See SIFMA June 2023 Letter at 3. 

1035See CAT LLC July 2023 Response Letter at 28. 

1036 Id. 

1037See supra note 1024. 

1038See supra note 1023. 

1039See supra note 409. 

1040See supra note 410. 

1041 17 CFR 242.608(b). 

1042See Securities Exchange Act Release No. 

96725 (Jan. 20, 2023), 88 FR 5059 (Jan. 26, 2023). 

1043 17 CFR 242.613(a)(5). 

1044Some commenters stated that the 

Participants’ analysis of the effects of the Proposed 

Amendment on Efficiency, Competition, and 

Capital Formation was lacking analysis and/or 

information (see, e.g., SIFMA June Letter at 4; 

Citadel July Letter at 2, 11, 12–13, and 16) and 

several commenters made general statements that 

the Proposed Amendment would have negative 

effects on Efficiency, Competition, and Capital 

Formation (see, e.g., SIFMA June Letter at 3; Citadel 

July Letter at 12 and 15). The Commission has 

independently analyzed the Proposed Amendment 

using information from the Participants and 

commenters as well as additional information as 

indicated. 

1045Some of the conclusions of the Proposed 

Amendment on Efficiency, Competition, and 

Capital Formation provided by the commenters and 

Participants are assessed relative to alternatives 

rather than the baseline the Commission used in the 

analysis herein. 

1046See supra Section III for a discussion of why 

the Commission is approving the Proposed 

Amendment. 

1047See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84882. 

commenter further stated that the 

Commission cannot determine whether 

the proposed allocation of costs is 

equitable without assessing the 

distribution of costs and benefits under 

the other pending proposals.1028

In response to comments that urged 

the Commission to prioritize CAT data 

security concerns,1029 CAT LLC stated 

that ‘‘CAT security is of paramount 

importance, and the CAT System is 

protected by a comprehensive 

information security program required 

by the CAT NMS Plan and overseen by 

a dedicated CISO, as well as via SEC 

oversight . . .’’ 1030 CAT LLC stated that 

security concerns should not be used to 

prevent appropriate funding of the CAT, 

noting that appropriate funding can 

help to ensure the security of CAT 

Data.1031

CAT LLC also responded to comments 

that expressed concern that the 

Commission was considering the 

Proposed Amendment while also 

considering changes to Commission 

rules governing equity market 

structure.1032 CAT LLC stated that the 

Commission’s consideration of its 

market structure proposals should not 

impede its decision on the Proposed 

Amendment, which would ensure 

appropriate funding of the CAT as these 

are different decisions.1033

In response to the commenter that 

stated that the Commission would be 

rushing to approve the Proposed 

Amendment,1034 CAT LLC stated that 

‘‘the current model results from years of 

modifications that have been made in 

significant part in response to industry 

comments to earlier versions,’’ 1035 and 

that because the current proposal 

‘‘differs very little from the immediately 

preceding funding model,’’ commenters 

had more than 400 days to comment on 

the substance of the Proposed 

Amendment.1036

The CAT data security issues and the 

costs and benefits of unrelated pending 

equity market structure proposals 1037

are beyond the scope of the Proposed 

Amendment, which is limited to CAT 

funding. Further, the Commission’s 

ability to consider the proposed 

amendments to the CAT NMS Plan to 

enhance data security is not impacted 

by the Proposed Amendment, as it is a 

separate proposal and both are being 

considered in due course.1038 Given the 

time between the Prior Funding Model 

Proposal and the OIP of the Proposed 

Amendment, the Commission has also 

had ample time for ‘‘careful 

consideration’’ of the Executed Share 

Model as the Proposed Amendment’s 

proposed changes to the CAT NMS Plan 

are closely similar to the changes 

proposed in the Prior Funding Model 

Proposal,1039 as modified by the two 

partial amendments that were filed, 

respectively, in November 2022 and 

February 2023.1040 Additionally, the 

time spent for the Commission’s review 

of the Proposed Amendment is 

consistent with the time permitted by 

Rule 608(b) for the Commission to 

approve or disapprove NMS plan 

amendments,1041 for both the Prior 

Funding Model Proposal (for which the 

Commission extended to 300 days from 

the date of notice publication the date 

by which the Commission would 

conclude proceedings to determine 

whether to approve or disapprove the 

Prior Funding Model Proposal),1042 and 

this Proposed Amendment. 

IV. Efficiency, Competition, and Capital 

Formation 

In determining whether to approve a 

proposed amendment, and whether 

such amendment is in the public 

interest, Rule 613 requires the 

Commission to consider the potential 

effects of the proposed amendment on 

efficiency, competition, and capital 

formation.1043 In its analysis, the 

Commission has reviewed the 

arguments about such effects put forth 

by the Participants and commenters and 

independently analyzed the likely 

effects of the Proposed Amendment on 

efficiency, competition, and capital 

formation.1044 Several commenters 

stated that, because CAT costs incurred 

to date are greater than those estimated 

at the time the CAT NMS Plan was 

approved, the Commission should 

update its economic analysis of that 

plan. Because that analysis was 

conducted in the process of deciding 

whether to approve the original plan 

and was appropriately based upon the 

information available to the 

Commission at the time it made that 

determination, we decline to do so. 

However, in analyzing the potential 

impacts of the Proposed Amendment on 

efficiency, competition, and capital 

formation—including our discussion of 

the economic baseline—the Commission 

has supplemented the analysis in the 

CAT NMS Plan Approval Order with 

additional information learned since the 

time of that Order. Therefore, for the 

purposes of this analysis, the effects are 

measured against a baseline that 

recognizes that the Proposed 

Amendment replaces certain provisions 

of the CAT NMS Plan and the Proposed 

Amendment also provides detail not 

previously included in the CAT NMS 

Plan.1045 As a result, the Commission 

provides the baseline required to 

conduct a comprehensive analysis of the 

Proposed Amendment in light of issues 

raised in the Notice and public 

comments. 

Based on its analysis, the Commission 

believes that the Proposed Amendment 

will involve efficiency gains along some 

dimensions but will likely also involve 

tradeoffs against other forms of 

efficiency, could negatively alter the 

competitive position of particular 

competitors, though the fees associated 

with the Proposed Amendment are 

unlikely to be large enough to affect 

overall competition, and will result in 

insignificant effects on capital 

formation.1046 These effects are 

discussed below. 

A. Efficiency 

1. Baseline 

In the CAT NMS Plan Approval 

Order, the Commission identified 

certain elements of the Original Funding 

Model that could have negative 

implications for efficiency and also 

stated that the significant uncertainty in 

the Original Funding Model could also 

have implications for efficiency.1047 In 


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1048See Notice, supra note 7, 88 FR at 17103. 

1049See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84881. 

1050See CAT Industry Webinar: CAT Costs, supra 

note 873. The Participants stated in this 

presentation to Industry Members in Sept. 2021, 

that, ‘‘[t]he primary cost drivers for the CAT are 

compute costs (e.g., linker) and storage costs. These 

costs are volume based and have increased 

significantly each year beyond the volume estimate 

included in the Plan.’’ 

1051CAT LLC July 2023 Response Letter at 22. For 

the first quarter of 2023, 72.9% of CAT costs are 

cloud costs (See CAT Financial and Operating 

Budget | CATNMSPLAN). 

1052 Id. See also, CAT NMS Plan Approval Order, 

supra note 2, 81 FR at 85024–5 for a discussion of 

linkage requirements. 

consideration of the comment letters 

submitted in response to the Executed 

Share Model, the Commission 

recognizes that the Original Funding 

Model would have also resulted in 

additional inefficiencies. Overall, the 

Original Funding Model could have 

resulted in negative, but likely 

insignificant, reductions in operational 

efficiencies, skewed incentives for 

efficiency, and reductions in market 

efficiencies. 

a. Operational Efficiency 

The tiered structure of the Original 

Funding Model would also have led to 

uncertainties affecting operational 

efficiencies of Industry Members and 

Participants. In particular, Industry 

Members would not have known their 

per-message cost until the end of the 

month, though they would have charged 

their customers in real time, creating an 

inefficiency. In particular, the Original 

Funding Model would have charged flat 

fees to Industry Members and 

Participants in the same tiers (‘‘Original 

CAT Fees’’). Thus, Industry Members 

with message traffic near the top of the 

tier would pay lower fees per message 

than Industry Members in the same tier 

but with lower message traffic. 

Likewise, Participants with more market 

share in their tiers would pay lower fees 

per executed share. Even if Industry 

Members and Participants could predict 

which tier they would be in, passingthrough fees would involve Industry 

Members and Participants charging 

based on expected per-message or pershare Original CAT Fees rather than 

actual per-message or per-share Original 

CAT Fees, which could have been 

higher or lower than expected. This 

uncertainty creates an operational 

inefficiency in structuring the fee passthrough. 

Also, charging Industry Members a 

flat fee that depends on their message 

traffic could result in Industry Members, 

who generally earn revenue only for 

executed orders,1048 getting charged for 

orders that do not transact. This could 

have resulted in certain Industry 

Members paying more in Original CAT 

Fees than they generated from 

transactions. Further, some Industry 

Members would have found passing 

through fees only to those whose orders 

transact operationally more efficient by 

increasing existing fees (or reducing 

incentives such as payment for order 

flow). These situations would have 

resulted in transacted orders subsidizing 

the burdens of message traffic (assuming 

message traffic is the only cost driver). 

Complexities associated with creating 

tiers in the Original Funding Model 

would also have created operational 

inefficiencies. To ensure that the CAT 

NMS Plan covered its costs with the 

tiered fees, the creation of the fee 

schedule would have involved deciding 

on the number of tiers, estimating how 

many Industry Members would qualify 

for each tier, estimating how much to 

charge each tier, and then justifying 

each decision. The potential for 

disagreements resulting from the 

complexity and the challenges in 

drafting justifications for such complex 

decisions could have involved a 

cumbersome and inefficient fee setting 

experience. 

b. Incentive Effects 

The Original Funding Model also 

could have affected efficiency by 

skewing incentives. Because fees to be 

charged by CAT are based on cost 

recovery, aligning such fees with 

burdens on CAT could promote 

efficiency by creating incentives to limit 

costs. If message traffic is the only cost 

driver of CAT, the Original Funding 

Model created incentives for Industry 

Members to limit costs by limiting their 

unnecessary message traffic,1049 but the 

tiered structure of the Original Funding 

Model would have dampened these 

incentives, and message traffic is not the 

only cost driver of CAT. Further, the 

uncertainty in the allocations across 

equities or options and across 

Participants or Industry Members meant 

that the Original Funding Model would 

have created the risk that the 

inefficiencies of such allocations were 

less than perfectly aligned with costs. 

Finally, any pass-throughs to 

Participants’ members or the customers 

of Industry Members could have further 

dampened the incentives for cost 

efficiency. As a result, the Original 

Funding Model would not have 

perfectly aligned fees with the costs 

imposed on CAT, limiting the 

incentives for cost efficiency. 

While the Original Funding Model 

would have set fees for Industry 

Members based on their message traffic, 

the efficiency benefits were unlikely to 

have been significant. First, its tiered 

structure would have dampened the 

incentives to reduce the costs of CAT by 

reducing unnecessary message traffic. In 

particular, the Original Funding Model 

would have assigned Industry Members 

to tiers based on their message traffic. 

Within a tier, however, all Industry 

Members would have been charged the 

same flat fee. Thus, an additional 

message would have been free in terms 

of CAT costs unless it put the Industry 

Member into a higher tier. So, only 

those Industry Members close to a cutoff 

would have had the incentive to reduce 

message traffic, and Industry Members 

who expected to be in the top tier would 

have had no incentive to reduce 

unnecessary message traffic. Further, 

Industry Members cannot reduce 

message traffic without altering how 

they handle customer orders, which 

could be counter to their duties, or 

reducing liquidity, which could reduce 

market efficiency. Therefore, absent 

evidence of significant unnecessary 

message traffic, the efficiency 

improvements of basing Original CAT 

Fees on message traffic are unlikely to 

have been significant. 

In addition, since the approval of the 

CAT NMS Plan, additional information 

about the cost drivers have been made 

public and suggest that message traffic 

is not the only cost driver.1050 In 

particular, a September 2021 report 

shows that 51% of CAT costs are from 

the ‘‘Linker,’’ 17% from storage, and 

15% from ‘‘Data, Processing, Collection, 

& ETL.’’ In addition, the Participants in 

their response to commenters indicated 

that 75% of CAT costs are the 

processing and storage of CAT data in 

the cloud.1051 The ‘‘Linker’’ costs are 

the costs to link order messages across 

a lifecycle.1052 These costs involve 

looking across four days of data and are 

likely related to message traffic. While 

the report does not separate options 

messages from equities messages, it does 

indicate that Participant message traffic 

involved in linkage processing is much 

larger than Industry Member message 

traffic. However, the Commission 

understands that complexity of the 

order lifecycles is a cost driver within 

the linkage processing, and certain order 

handling practices of Industry Members, 

such as the use of riskless principal 

transactions, involve more complex 

linkages than other order handling 

practices. Indeed, while one commenter 

stated, ‘‘costs are a direct result of the 

total number of messages that CAT 

Reporters (both Participants and 


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1053SIFMA May 2023 Letter at 4. 

1054Furthermore, because options market makers 

do not report many of their quotes to CAT, instead 

sending a quote-sent time stamp to options 

exchanges that is included in the exchanges’ CAT 

data, additional option market maker quotes 

increase the message traffic of Participants rather 

than option market makers and are, thus, not 

counted in the message traffic of Industry Members 

in the Original Funding Model. Consequently, 

roughly 72% of CAT message traffic could only 

affect Participant fees, which are capped in the 

Original Funding Model, though the Plan does not 

define the exact cap. See CAT NMS Plan Approval 

Order, supra note 2, 81 FR at 84873. 

1055See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84891–2. 

1056 Id. at 84853. 

1057See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84879. 

1058 Id. at 84879. 

1059See Notice, supra note 7, 88 FR at 17115. 

Industry Members) send to CAT, the 

costs of processing and linking such 

messages, and the costs to CAT of 

providing tools and mechanisms to the 

SEC and SROs to analyze the CAT 

data,’’ 1053 the processing and linking 

and regulatory use costs are not 

perfectly aligned with message traffic. 

The Original Funding Model did not 

indicate how Original CAT Fees would 

be allocated to equities versus options, 

but this allocation decision would have 

had an effect on efficiency. The options 

markets account for the vast majority of 

message traffic, but most of the options 

market message traffic is on-exchange 

message traffic (mostly market maker 

quotes).1054 However, option market 

maker quotes likely do not have 

complex order lifecycles that would 

drive the costs of the linkage processing. 

Further, the Commission understands 

that the linkage processing of equities 

orders is generally more complex than 

the linkage processing of options orders. 

As a result, it is unlikely that the 

Original Funding Model would have 

successfully matched Original CAT Fees 

with cost burdens without a complex 

algorithm to allocate costs across 

equities and options. 

The Original Funding Model also had 

the potential to result in a lack of 

incentives for Participants to seek 

efficient ways to achieve the regulatory 

objectives of CAT.1055 In particular, the 

Original Funding Model did not specify 

the allocation between Industry 

Members and Participants and it could 

have skewed heavily toward Industry 

Members. If the Original CAT Fees 

would have offset CAT costs without 

the Participants internalizing those CAT 

costs, Participants could lack the 

incentive to limit costs. Thus, a lower 

allocation to Participants could reduce 

Participants’ incentives to limit CAT 

costs. 

The ability for Participants and 

Industry Members to pass through fees 

could reduce incentive effects of the 

Original Funding Model, but the 

Commission believes that Participants 

and Industry Members would still have 

had some incentives to limit costs. In 

the CAT Approval Order, the 

Commission recognized that FINRA 

could pass through its fees to its 

members.1056 Other Participants could 

have also passed through their fees to 

their members, but such pass-throughs 

could take several forms. The 

Commission understands that 

Participants, including FINRA, have 

many revenue sources, such as 

transaction fees, data fees, connectivity 

fees, listing fees, regulatory fees. In fact, 

because the Original Funding Model 

charged Participants based on their 

market share, the most direct way for 

Participants to pass through the costs 

would have been to increase fees related 

to their market share—their transaction 

fees, which are based on a fee schedule 

set pre-trade. Because the per volume 

CAT fee would have been unknown at 

the time the Participants had to file the 

transaction fees for such volume, the 

Participants would have internalized 

the risk of the pass-through fees not 

covering their Original CAT Fees. 

Likewise, Industry Members who passthrough their Original CAT Fees would 

have had reduced incentives to limit 

CAT costs, but the inability to structure 

their pass through to perfectly align 

with Original CAT Fees would have 

forced some internalization of costs. 

c. Market Efficiency 

The Original Funding Model could 

have resulted in market inefficiencies, 

though these inefficiencies were 

unlikely to be significant.1057 Several of 

these inefficiencies derive from the fact 

that the Original Funding Model would 

have charged Industry Members a flat 

fee according to a tiered fee schedule. 

An Industry Member’s tier would have 

been determined by its message traffic. 

Because providing liquidity, including 

but not restricted to market making, 

involves more potential message traffic, 

the Original Funding Model could 

discourage liquidity provision. 

Discouraging liquidity provision could 

reduce liquidity, particularly in less 

liquid securities, potentially reducing 

market efficiency. The tiered nature of 

the Original Funding Model reduced the 

potential reduction in liquidity by 

flattening the fees, but this could create 

its own inefficiencies if Industry 

Members alter activity to avoid 

qualifying for a higher tier. The 

Commission concluded in the CAT 

NMS Plan Approval Order that any 

changes in behavior were unlikely 

except in those Industry Members near 

a fee-tier cutoff point, and, therefore, 

these behavior changes would likely not 

have a significant effect on market 

quality or efficiency.1058

2. Analysis of the Proposed Amendment 

The Participants provided an analysis 

of efficiency in the Notice. In particular, 

the Participants state that, ‘‘By 

providing for the financial viability of 

the CAT, the [Executed Share Model] 

would allow the CAT to provide its 

intended benefits. For example, the CAT 

is intended to provide significant 

improvements in efficiency related to 

how regulatory data is collected and 

used. In addition, the CAT could result 

in improvements in market efficiency by 

deterring violative activity.’’ 1059

The Commission considered whether 

the Executed Share Model promotes 

efficiency along several dimensions: 

operational efficiency, incentive 

alignment, and market efficiency. In this 

analysis, the Commission considered 

both how the Executed Share Model 

differs from the Original Funding Model 

and the additional details in the 

Executed Share Model not previously 

included in the CAT NMS Plan. In the 

analysis below, the Commission 

explains that the Executed Share Model 

itself will promote operational 

efficiency and market efficiency, trade 

off some efficiencies associated with 

aligning fees with CAT costs against 

others, and create some efficiencyimproving incentives at the expense of 

others. The analysis also recognizes 

below that some commenters stated that 

the Executed Share Model is less 

efficient than it could be. 

a. Operational Efficiency 

The Commission believes that the 

Executed Share Model presents some 

operational efficiency improvements 

over the Original Funding Model while 

recognizing that commenters point out 

that it may not be as efficient as other 

alternatives. The Executed Share Model 

could improve efficiency over the 

Original Funding Model by providing 

more certainty on potential costs for 

Industry Members and by reducing the 

complexity of the fees. However, it is 

not clear that the Executed Share Model 

presents an operational efficiency 

improvement over the Original Funding 

Model with respect to precision of 

estimates of expected total fees to be 

collected. 

Relative to the Original Funding 

Model, Industry Members and 

Participants will be better able to 

observe their fee per activity, in this 


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1060See supra Section IV.A.1.a for a discussion of 

how the per-message fees would have varied within 

the flat-fee tiers of the Original Funding Model. 

Also, one commenter stated that the Proposed 

Amendment would afford industry with a 

‘‘straightforward rate to be applied across buyers 

and sellers.’’ See DASH July Letter at 2. 

1061See SIFMA May 2023 Letter at 5. 

1062See, e.g., SIFMA June 2023 Letter at 2; MMI 

July Letter at 2; Citadel July Letter at 20 and 24; 

Citadel Letter August 2023 at 5–6; and Virtu Letter 

at 4–5. Citadel July Letter at 20 and 24 also focused 

specifically on the ability for IMs to pass through 

Historical CAT Assessments, but those fees would 

also have a fixed rate charged to future executed 

shares, so passing those fees through would still 

represent an efficiency improvement over the 

Original Funding Model. 

1063See supra Section IV.A.1.a for information on 

current fee arrangements based on executed shares. 

See also CAT LLC July 2023 Response Letter at 9 

and 34. 

1064See CAT LLC July 2023 Response Letter at 3– 

4. 

1065See CAT LLC July 2023 Response Letter at 9– 

10. 

1066See DASH January 3 Letter at 1. 

1067 Id. 

1068See DASH April Letter at 1; DASH July Letter 

at 1. 1069This could result in Industry Member CAT 

fees being borne by clearing broker-dealers. The 

SIFMA May 2023 Letter said that allocating ‘‘CAT 

Fees to clearing brokers would have led to unfair 

burdens on them and could have resulted in them 

shouldering the burden of CAT costs in scenarios 

in which they could not determine which clearing 

client was responsible for the costs.’’ This 

commenter, commenting on the prior funding 

proposal which originally proposed to assess CAT 

fees on clearing brokers instead of executing 

brokers, stated that clearing brokers would 

especially have difficulty passing on the Past CAT 

Costs to their clearing clients. See Letter from Ellen 

Greene, Managing Director, Equities & Options 

Market Structure, and Joseph Corcoran, Managing 

Director, Associate General Counsel, SIFMA, to 

Vanessa Countryman, Secretary, Commission (Oct. 

7, 2022), at 4–5, available at https://www.sec.gov/ 

comments/4-698/4698-20145239-310561.pdf. This 

commenter also discussed the additional 

implementation and operational costs the prior 

funding model would impose on clearing brokerdealers. See Letter from Ellen Greene, Managing 

Director, Equities & Options Market Structure, and 

Joseph Corcoran, Managing Director, Associate 

General Counsel, SIFMA, to Vanessa Countryman, 

Secretary, Commission (June 22, 2022) (‘‘SIFMA 

June 2022 Letter’’), at 9, available at https://

www.sec.gov/comments/4-698/4698-20132695- 

303187.pdf. Also, the Proposed Amendment 

requires the collection of CAT fees from both the 

buy and sell side of the transaction. Commenters on 

the prior funding proposal stated that current 

industry practice does not involve clearing brokerdealers collecting fees from the buy-side of the 

transaction, and thus it might require costly 

implementation steps from clearing broker-dealers. 

See Letter from Kirsten Wegner, Chief Executive 

Officer, Modern Markets Initiative, to Vanessa 

Countryman, Secretary, Commission (June 21, 

2022), at 3, available at https://www.sec.gov/ 

comments/4-698/4698-20132603-303126.pdf; 

SIFMA June 2022 Letter at 9; see https://

www.sec.gov/comments/4-698/4698-20132603- 

303126.pdf; SIFMA June 2022 Letter at 9. See also 

supra note 58. CAT LLC describes in their response 

to comments that charging clearing brokers would 

be less efficient than charging executing brokers 

because it would require linking executed shares to 

clearing brokers. They argue that charging executing 

brokers is simple, straightforward, and in-line with 

existing fee and business models. They also 

describe how CAT LLC is planning to make passthrough of costs easier, which would also increase 

operational efficiency for Participants and Industry 

Members. See CAT LLC July 2023 Response Letter 

at 3 and 5. 

case per share transacted, and can more 

easily pass all or a portion of those fees 

through to members or customers. 

Under the Executed Share Model, the 

CAT Fee and Historical CAT 

Assessments per Executed Equivalent 

Share are known before an order is 

submitted such that all market 

participants can estimate in advance the 

fees charged on each potential 

transaction rather than Industry 

Members only learning about their fees 

per message after the end of the month 

under the Original Funding Model.1060

Having more precise information on fee 

rates helps Industry Members and 

Participants who choose to pass-through 

these fees to create fee schedules for 

their customers that better reflect their 

costs, resulting in operational 

efficiencies. In response to the 

commenter who said that Industry 

Members ‘‘are not set up to track and 

pass-through fees to the client [brokerdealers] that sent them the orders that 

resulted in executions’’ 1061 and other 

similar comments,1062 the Commission 

understands that such Industry 

Members generally have arrangements 

with client broker-dealers for services 

based on executed shares and these 

arrangements could include charges to 

cover various fees.1063 Further, CAT 

LLC argues that charging the executing 

brokers as specified in the Executed 

Share Model is an efficient way for CAT 

LLC to bill Participants and Industry 

Members as it is simple, 

straightforward, and in-line with 

existing fee and business models.1064

They also acknowledge that certain 

Industry Members will have to develop 

processes to collect pass-through CAT 

fees from clients and describe that the 

Plan Processor plans to make available 

trade-by-trade data to CAT Executing 

Brokers for each CAT bill, which will 

facilitate the passing-through of CAT 

fees.1065

The Commission believes that the 

Executed Share Model reduces the 

complexities of the Original Funding 

Model, improving operational 

efficiency, but that the Executed Share 

Model may not increase the precision in 

estimating the fees to be collected, thus 

creating uncertainty in its impact on 

operational efficiency. The Executed 

Share Model will not involve designing 

a tiered structure that estimates how 

many Industry Members and 

Participants will qualify for each tier 

based on projections of each’s message 

traffic or market share, coming up with 

cutoffs and flat fees in each tier to cover 

projected costs, and justifying each 

projection model, tier cutoff, and flat 

fee. Instead, the Executed Share Model 

involves estimating future volume, 

dividing budgeted costs by the 

estimated future volume, and justifying 

the estimated future volume model and 

budgeted costs. Thus, the Executed 

Share Model will be much less complex 

for Participants to implement. However, 

because the Executed Share Model 

involves estimating future volume and 

the Commission has observed 

significant fluctuations in volume, the 

fees actually collected in the Executed 

Share Model will not necessarily match 

the budgeted costs. Because the Original 

Funding Model had similar 

uncertainties, the Commission cannot 

determine if this inefficiency is more or 

less severe for the Executed Share 

Model. 

The Commission recognizes the 

inefficiencies pointed out by some 

commenters associated with invoicing 

CEBBs and CEBSs directly rather than 

using clearing brokers to collect fees.1066

Because the Original Funding Model 

allowed for but did not specify the use 

of clearing brokers, this inefficiency is 

not relative to the baseline but is 

relative to an alternative. The industry’s 

current practice is to collect certain 

regulatory fees from the sell-side 

clearing broker-dealer. One commenter 

stated, ‘‘[c]learing Firms are best suited 

to process the collection of fees as it can 

occur at trade settlement and the cost is 

ultimately borne by the end beneficiary 

of each transaction. This seems prudent 

from a logistical and efficiency 

perspective and, in our opinion, also 

introduces the least financial risk to the 

industry today.’’ 1067 This commenter 

also made similar statements in 

subsequent comment letters.1068

However, as another commenter noted, 

collecting CAT fees from clearing 

broker-dealers could introduce 

inefficiencies as well.1069

b. Incentive Effects 

The Commission recognizes the 

potential for the Executed Share Model 

to affect incentives and, therefore, either 

improve or harm efficiency. Aligning 

fees with costs promotes economic 

efficiency because Industry Members 

and Participants bear the costs they 

directly or indirectly impose on CAT 

NMS, creating the incentive to limit 

costs. Overall, the Executed Share 

Model will have inefficiencies related to 

not perfectly aligning with costs, but 

might not be any more inefficient than 


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1070See Notice, supra note 7, 88 FR at 17103 (‘‘In 

light of the many inter-related cost drivers of the 

CAT (e.g., storage, message traffic, processing), 

determining the precise cost burden imposed by 

each individual CAT Reporter on CAT is not 

feasible.’’). See also CAT LLC July 2023 Response 

Letter at 34, where the Participants describe that it 

is difficult to determine the precise cost burden 

imposed by each individual CAT reporter. They 

state that increased trading activity impacts 

message traffic, data processing, storage, and other 

factors and, thus, correlate with cost burdens and 

that Industry Member activity is generally for the 

purpose of transacting. 

1071See supra Section IV.A.1.c for further 

discussion of the inefficiencies of the Original 

Funding Model. 

1072See supra note 1050 and accompanying text 

for a discussion of CAT cost drivers. The biggest 

cost driver is for linking order messages into a 

lifecycle, followed by storage costs. 

1073See Citadel July Letter at 20. This commenter 

states that trades in stocks with sub $1 prices 

account for 33% of retail NMS stock trading and 

that rounding fractional shares to 1 share further 

increases the share of CAT costs charged to retail 

transactions. See also Citadel August Letter at 4. 

1074See, e.g., CAT NMS Plan Approval Order, 

supra note 2, 81 FR at 84863, 84881, 84888, and 

84893 for examples of statements on investors 

bearing the costs of CAT and at 84833 to 84845 for 

ways that investors benefit from CAT. 

1075See FINRA April 2023 Letter at note 23. See 

also Citadel August Letter at 4 citing to the FINRA 

April 2023 Letter. 

1076Calculated using monthly market volume 

data from Cboe for equities: Cboe, US Equities: 

Historical Market Volume Data, available at https:// 

www.cboe.com/us/equities/market_statistics/ 

historical_market_volume/, OCC for options: 

Options Clearing Corp., Market Data: Monthly & 

Weekly Volume Statistics, available at https://

www.theocc.com/market-data/market-data-reports/ 

volume-and-open-interest/monthly-weekly-volumestatistics, and FINRA for OTC securities: FINRA, 

Over-the-Counter-Equities: Market Statistics, 

available at https://otce.finra.org/otce/ 

marketStatistics/historicalData. Option contract 

volume is multiplied by 100 and OTC volume is 

divided by 100 to establish rough estimates of 

equivalent share volume to reported equity 

transactions. 

1077CAT Plan Participant and Industry Member 

Report Card Monthly Summary Tables, which 

contain the number of records processed into CAT. 

1078See supra note 1050 and accompanying text 

for a discussion of cost drivers. ‘‘Linker’’ accounts 

for 51% of CAT costs while storage accounts for 

17%. Data processing, Collection and ETL costs are 

15%. 

1079Mar. 2023 CAT data. If processing and storing 

CAT messages is a primary cost driver, options 

exchanges’ collective 8.9% share of CAT costs 

(compared to equity exchanges’ 13.6% share and 

FINRA’s 10.8% share) may also appear to 

inefficiently over-allocate the Participants’ share of 

CAT costs to equity exchanges. However, 

processing and storage costs combined account for 

lower costs than linkage processing. See id. 

1080See supra Section IV.A.1.b for further 

discussion of option market maker quotes. 

1081Based on Mar. 2023 CAT data containing 

statistics for validations and linkage for files 

submitted to FINRA CAT, the equities market 

accounted for 1.24 trillion linkages processed on 

1.20 trillion messages reported while the options 

market accounted for 1.33 trillion linkages 

processed on 4.02 trillion messages reported. Most 

options market maker quotes have only two events 

in their CAT Lifecycle (i.e., quote and quote 

cancelation) and don’t require linkage to other CAT 

events. 

the Original Funding Model. In 

particular, basing Industry Member fees 

on share volume rather than message 

traffic could reduce efficiency relative to 

the Original Funding Model, but the 

efficiency benefits of the Original 

Funding Model would have been 

dampened by its tiered structure. The 

Commission recognizes that, based on 

the breadth of CAT costs, it is not 

feasible to calculate the cost burden on 

CAT of each CAT Reporter 1070 and the 

Executed Share Model could also have 

some efficiency improvements over the 

Original Funding Model. The 

Commission also recognizes the 

potential risks of the Proposed 

Amendments on not incentivizing 

Participants enough to consider cost 

efficiency. In addition, the Commission 

considered other incentives as well, but 

believes that the potential magnitude of 

CAT fees is unlikely to significantly 

affect these efficiencies. 

Because CAT costs have some relation 

to message traffic, a fee schedule less 

dependent on message traffic such as 

the Executed Share Model will be less 

efficient on this dimension. As such, the 

Executed Share Model could create 

inefficiencies relative to the messagetraffic based Original Funding Model. 

Further, the Executed Share Model 

could result in Participants or Industry 

Members paying different fees across 

transactions despite potential 

similarities in cost. For example, 

Participants or Industry Members will 

be charged ten times the fee for a 1,000 

share transaction than for a 100 share 

transaction. While 1,000 share 

transactions may, on average, have a 

higher burden on CAT than a 100 share 

transaction because such transactions 

are more likely to involve more 

messages and more complex lifecycles, 

the burden of a 1,000 share transaction 

on CAT versus a 100 share transaction 

is unlikely to be ten times higher. 

However, the incentive efficiencies of 

the message-traffic based fees in the 

Original Funding Model would have 

been dampened by several factors,1071

including the tiered structure of the 

Original Funding Model and by the fact 

that message traffic is not the only 

significant cost driver for CAT.1072

One commenter raised other potential 

inefficiencies related to outsized 

allocations to transactions for retail 

investors associated with those retail 

investors trading low priced NMS 

stocks.1073 The Commission recognizes 

that such an allocation could discourage 

brokers from servicing retail investors if 

they cannot pass through all CAT costs 

to investors and/or that retail investors 

could be paying for a large portion of 

CAT costs. In the Approval Order, the 

Commission recognized that retail 

investors were likely to bear costs for 

CAT and were beneficiaries of CAT.1074

Further, if the Executed Share Model 

over-allocates fees to equity market 

transactions relative to options market 

or OTC equity transactions, it will create 

inefficiency by artificially inflating 

equity transaction costs while 

artificially decreasing options and OTC 

transaction costs. The Commission has 

mixed information on whether the 

Executed Share Model will, indeed, 

over-allocate fees to the equity markets. 

One commenter stated that equity 

trading volume creates a relatively low 

burden relative to options activity.1075

The Commission disagrees with this 

statement. Based on March 2023 public 

market data,1076 equities (NMS and 

OTC) account for approximately 73% of 

the equivalent share volume while 

options account for approximately 27%. 

On the contrary, based on an analysis of 

March 2023 CAT data, equities account 

for 23% of message traffic while options 

account for 77%.1077 The message traffic 

in the options market is driven by 

options market quotes, which are 

reported by options exchanges. If 

processing and storing CAT messages is 

a primary cost driver and option and 

equity messages are equally 

burdensome, aligning fees to costs 

would result in the Participants and 

Industry Members in the equities 

markets being assessed approximately 

23% of the fees, suggesting that the 

Executed Share Model allocation of 

approximately 73% of the fees overallocates fees to equities. 

However, because equity order 

linking complexity likely accounts for 

higher costs than option order linking 

complexity, the higher allocation of 

CAT fees to equity market Participants 

and Industry Members could promote 

efficiency. The linkage processing costs 

of CAT are three times the storage 

costs.1078 The Commission estimated 

that roughly 90% of CAT Participant 

message traffic and 72% of total 

message traffic is comprised of options 

market quotes.1079 While option market 

maker quotes account for such a large 

fraction of message traffic and, thus, 

storage costs, option market maker 

quotes involve lower linkage costs than 

other messages.1080 Indeed, the equities 

market accounted for about 48.4% of the 

number of linkages processed and the 

number of options linkages processed 

was a third of the number of options 

messages reported, reflecting less 

linkage processing for many options 

market maker quotes.1081 Additionally, 

the Commission understands that 


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1082See supra Section IV.A.1.b. 

1083See, e.g., Citadel July Letter at 1, 5, 6, and 16; 

Citadel August Letter at 2; MMI July Letter at 1–3. 

1084See, e.g., Citadel July Letter at 2, 5, 7–9, 23, 

and 26–27; Citadel August Letter at 7–8; FIA PTG 

at 4–5; FIF/SIFMA at 5. One commenter pointed out 

that CAT costs typically exceed the budget by 20% 

(See Citadel July Letter at 8–9, n.21; Citadel August 

Letter at 7). In addition, one commenter stated that 

CAT operating costs significantly exceed cost 

estimates in the CAT NMS Plan and recent 

increases in CAT operating costs are not sustainable 

(See FIF/SIFMA Letter at 7–8). 

1085See, e.g., Citadel July Letter at 2, 6–7, 13–14, 

and nn.63, 64; Citadel August Letter at 6–7; FIA 

PTG at 1 and 4, MMI July Letter at 3. In addition, 

one commenter stated that enhanced transparency 

about CAT costs is necessary, especially for the 

cloud costs (See FIF/SIFMA Letter at 8–9). 

1086See Citadel August Letter at 7. 

1087See, e.g., SIFMA June Letter at 2 and 4; Virtu 

Letter at 4; FIF/SIFMA Letter at 5; SIFMA AMG 

Letter at 3. One commenter (FIF/SIFMA Letter at 5) 

pointed out that there is no legal limit to CAT costs. 

One commenter (Citadel August Letter at 7) states 

that there are no constraints on costs. 

1088See, e.g., FIA PTG Letter at 2–3; Citadel July 

Letter at 16 and 22; and MMI July Letter at 4. 

1089See also, CAT LLC May 2023 Response Letter 

at 10–11 for a discussion of other efforts to manage 

the costs of CAT. The Participants provide a more 

comprehensive response about cost management 

efforts (See CAT LLC July 2023 Response Letter at 

19–20). They state that Industry Members will have 

ample opportunity to comment, there will be 

quarterly budget information and financials, there 

is Commission oversight, and the Participants have 

ongoing cost discipline efforts through a cost 

management group and other efforts. For more 

details of the activities of the cost management 

group, see CAT LLC July 2023 Response Letter at 

22–26. 

1090See CAT LLC July 2023 Response Letter at 22. 

1091See CAT LLC July 2023 Response Letter at 22. 

1092See Securities Exchange Act Release No. 

96494 (Dec. 14, 2022), 87 FR 80266, tbl.5 (Dec. 29, 

2022). While exchanges charge several tiers of fees, 

they will not be able to raise the fees that already 

match the fee cap. 

1093But see FINRA April 2023 Letter: ‘‘it is 

unclear . . . how the outsized allocation to FINRA 

is based on the extent to which FINRA participates 

in and benefits from the markets. In addition, this 

rationale conflates the costs to create and operate 

CAT with the usage of CAT data.’’ The Commission 

believes that data usage does significantly 

contribute to CAT costs. Query tools, for example, 

account for 7% of CAT costs. See supra note 1050. 

Note that FINRA’s allocation in the Original 

Funding Model (∼48% for Participants’ share of the 

costs allocated to equities) could have been the 

same or greater than the allocation in the Executed 

Share Model. 

1094See CAT LLC July 2023 Response Letter at 7. 

1095See supra note 1094. 

1096See supra note 1094. 

1097See supra note 1094. 

1098The Participants state that they seed to 

reduce costs ‘‘without adversely affecting the 

regulatory goals of the CAT.’’ See CAT LLC July 

2023 Response Letter at 22. 

1099See SIFMA January 2023 Letter at 7. 

equities linkages can be more complex, 

and thus more costly to process, than 

are options messages. As a result, the 

Commission disagrees with the 

commenter’s assertion that equity 

trading volume creates a relatively low 

burden relative to options activity. 

The Commission believes that the 

Executed Share Model presents a risk, 

as the Original Funding Model did,1082

that Participants might not have the 

incentive to seek efficient ways to 

achieve the regulatory objectives of 

CAT. While the Executed Share Model 

specifies an allocation that was 

unknown in the Original Funding 

Model, several commenters question 

whether the allocation provides 

Participants with incentives to seek 

efficiency.1083 Commenters also 

expressed concern with rising CAT 

costs to illustrate the magnitude of this 

potential inefficiency,1084 stating that 

they do not have enough transparency 

on cost drivers to assess whether CAT 

costs are reasonable,1085 that no data or 

estimates regarding future costs were 

provided,1086 and that the Proposed 

Amendment has no mechanism to 

control or limit the budget.1087 Some 

commenters further stated that the 

ability to pass through fees lessens 

Participants’ incentive to control 

costs.1088

The Participants have stated that the 

transparency and level of detail in the 

fee filings will impose a discipline on 

the Participants to justify the costs of 

CAT.1089 For example, separating 

Historical CAT Costs from Prospective 

CAT Costs allows Industry Members 

more insight into the sources of CAT 

costs underlying the fees and to allow 

Industry Members to comment on the 

size of such fees. The Participants offer 

explanations for the increases in CAT 

costs. For example, at the adoption of 

the CAT NMS Plan in 2016, the 

Commission estimated that the CAT 

would receive 58 billion records per 

day, but the Participants state that as of 

the fourth quarter of 2022, the CAT 

receives an average 418 billion records 

per day.1090 This highlights the 

difficulty in estimating future costs 

because costs are directly related to 

trading activity. While the Participants 

did not provide data or estimates 

regarding future costs, they discussed 

how costs are related to trading activity, 

which should help Industry Members 

and other market participants form their 

own estimates. 

The Participants also disagree that 

they are not incentivized to manage 

costs with a one-third allocation. They 

argue that currently, there is a strong 

incentive to manage costs while paying 

100% of the costs and that incentive 

will continue with a one-third 

allocation. They state that CAT costs are 

substantial and they will continue to 

receive critical review.1091 In response 

to comments on whether the exchanges 

will pass through all of their fees, some 

of the equity exchange Participants 

already charge transaction fees at the 

maximum level allowed by regulation, 

which prevents them from increasing 

their transaction fees to efficiently pass 

through all CAT fees to their 

members.1092 As a result, such equities 

exchanges will likely internalize some 

of their CAT fees, ensuring some 

incentive to limit costs. In addition, the 

fact that FINRA is expected to be the 

heaviest regulatory user of CAT suggests 

that FINRA being responsible for a large 

proportion of CAT costs promotes 

efficiency.1093 Further, the Participants 

argue that the complexity and diversity 

of Industry Members’ chosen business 

models and order handling practices 

contributes substantially to CAT costs 

because they result in increased 

processing and storage costs.1094 In 

contrast, exchange features are not 

nearly as diverse as the ways in which 

Industry Members execute trades.1095 In 

addition, Industry Members have 

customers that create CAT costs related 

to FDIDs, CCIDs, and CAIS, while 

Participants do not.1096 Further, the 

Participants state that ‘‘Industry 

Members have far more late data and 

corrections than Participants’’ and that 

‘‘[t]he linker costs related to late data 

and corrections are significant.’’ 1097 The 

Commission believes that Industry 

Members being responsible for a large 

proportion of CAT costs promotes 

efficiency. This is particularly valid for 

late data and corrections, which is 

something Industry Members can 

directly control to reduce overall CAT 

costs. 

The Commission believes the 

Executed Share Model trades off 

incentives to inefficiently spend too 

much against incentives to inefficiently 

spend too little. The Commission does 

not believe that being responsible for 

CAT costs (or having to internalize CAT 

costs they do not pass through) will 

result in Participants having the 

incentive to under-spend on regulatory 

tools.1098 Any such under-spending 

would not reduce the Participants’ selfregulatory duties and could result in 

inefficiencies in their own regulatory 

costs. 

One commenter stated that charging 

for Historical CAT Costs using current 

volumes bears no relation to the 

contributions to CAT Costs.1099 The 

Commission agrees that the Historical 

Assessments in the Executed Share 

Model do not provide much incentive 

for efficiency. However, this does not 

reflect a change in the efficiency from 

the Original Funding Model, because 

Industry Members cannot retroactively 

change their behavior to reduce CAT 


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1100Section 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. The CAT LLC July 2023 Response Letter at 

18–19 offers two additional comparisons to 

transaction-based fees. They state that ‘‘Nasdaq 

charges various transaction-based equities fees, 

ranging from $0.0005 per share to $0.0030 [per 

share].’’ They also state that ‘‘Cboe charges an 

options regulatory fee that is $0.0017 per contract, 

and NYSE American charges an options regulatory 

fee of $0.0055.’’ Assuming that option contracts are 

for 100 shares of the underlying, this would 

translate to options regulatory fees of $0.000017 and 

$0.000055 per equivalent share. 

1101This is the average share-weighted effective 

spread across more liquid stocks from the first 

quarter of 2021. More liquid stocks were defined as 

the stocks in the most actively traded decile by total 

daily trading volume. Effective spreads are a 

measure of transaction costs. For each trade, the 

effective spread was calculated as the absolute 

value of the difference between the trade price and 

the quote midpoint at the time of the trade. Less 

liquid stocks have higher effective spreads, making 

the CAT fees even smaller relative to transaction 

costs. 

1102See Notice, supra note 7, 88 FR at 17130. In 

particular, Exhibit C sets forth illustrative Historical 

CAT Assessments. While this is an illustrative 

example and actual Historical CAT Assessments 

may differ, the Commission believes that the 

Historical Fee Rate per equivalent share, will be 

calculated using the methods laid out in the table 

‘‘Calculation of Historical CAT Assessment.’’ 

Further, the Commission assumes that the example 

Historical Fee Rate is of the approximate magnitude 

of potential Historical Fee Rates because this rate 

was calculated using actual CAT costs and volume 

estimates grounded in historical volume. While the 

rate may be imprecise for the reasons discussed in 

Exhibit C, the rate is unlikely to be orders of 

magnitudes larger because the sample fees assume 

two-year collection whereas the Operating 

Committee could choose a longer collection period. 

While Exhibit C only estimates Historical Fee Rates, 

the Commission does not expect Fee Rates to be 

significantly larger than Historical Fee Rates 

because Historical Fees will cover a longer time 

period than CAT Fees and will cover a broader 

scope of activities than CAT Fees. Historical Costs 

include costs incurred since the CAT Approval in 

Nov. 2016 to build, operate and maintain CAT up 

to a certain date and will be spread out over two 

to five years (the estimate was based on spreading 

it out two years). On the other hand, CAT Fees are 

based on Prospective Costs, which are estimates of 

monthly costs from a certain date forward and 

include costs to operate and maintain CAT. While 

some commenters expressed concern about 

increasing CAT costs that are much higher than 

those estimated in the 2016 Approval Order (See, 

e.g., SIFMA June Letter at 4; MMI July Letter at 3; 

and Virtu Letter at 4), some of those costs may 

reflect implementation costs in addition to ongoing 

costs. Once CAT is fully implemented, the 

Commission expects annual operating costs to 

reflect ongoing costs only. See also CAT LLC July 

2023 Response Letter at 17 for a comparison and 

discussion of historical and prospective CAT costs. 

The CAT LLC July 2023 Response Letter at 18–19 

also provides another example of a Historical Fee 

Rate. They add an additional year and consider all 

Historical CAT Costs for prior to 2023 and find that 

each CEBB and CEBS would pay $0.0000142689 per 

executed equivalent share (one third of 

$0.0000428068). The Historical Fee Rate based in 

this example is close to the Historical Fee Rate in 

Exhibit C. 

1103See supra Section IV.A.1.a. 

1104 Id. 

1105See supra note 1058 and accompanying text. 

1106See, e.g., MMI July Letter at 2; Citadel July 

Letter at 2; Virtu Letter at 5. One commenter stated 

that the Proposed Amendments would 

disproportionately impact market makers in 

particular (see Citadel July Letter at 2 and Citadel 

August Letter at 4). 

1107See supra Section IV.A.1 for a discussion of 

pass-through efficiency improvements. 

1108See SIFMA AMG Letter at 2. 

1109See Virtu Letter at 5. 

1110See supra Section III.A.2. 

costs under either model. Indeed, by 

separating Historical CAT Assessments 

from CAT Fees, the Executed Share 

Model could allow Industry Members 

and Participants to more clearly assess 

how their own actions could affect the 

Prospective CAT Costs and their CAT 

Fees to promote improvements to 

efficiency relative to the Original 

Funding Model. 

The Executed Share Model could 

change other incentives that could 

potentially affect efficiencies, but the 

expected magnitude of CAT Fees will 

mitigate the impact of such incentive 

changes. For example, if the fees for 

OTC transactions are not passed on to 

non-FINRA members, the Executed 

Share Model could discourage FINRA 

membership by those who have a 

choice. Further, the Historical Fee Rate 

in Exhibit C of $0.0000417950 per 

Executed Equivalent Share would result 

in each CEBB and CEBS paying 

$0.00001393167 per Executed 

Equivalent Share (one third of 

$0.0000417950). A comparison to recent 

Section 31 fees of $0.00009 per share to 

$0.0004 per share 1100 and average 

effective half spreads of $0.013 1101

indicates that the anticipated Historical 

Fee Rate and Fee Rate, assuming the Fee 

Rate is of a similar magnitude as the 

Historical Fee Rate, are expected to be 

relatively small.1102

c. Market Efficiency 

The Commission believes that the 

Executed Share Model will promote 

market efficiency, but has uncertainty as 

to the degree of any improvement. The 

Executed Share Model eliminates the 

disincentives to provide liquidity of the 

Original Funding Model that could have 

resulted in market inefficiencies, 

including removing the potential for 

perverse incentives near the tier 

cutoffs.1103 Instead of paying higher fees 

with more message traffic, which would 

discourage liquidity providing 

activity,1104 the Executed Share Model 

charges a fee for each Executed 

Equivalent Share. Because market 

making and other liquidity providing 

activity tends to have a high ratio of 

message traffic to transactions, the 

Executed Share Model could be more 

favorable towards providing liquidity 

than the Original Funding Model. 

Promoting liquidity provision promotes 

market efficiency. However, because the 

Original Funding Model addressed this 

disincentive in its tier structure, the 

Commission cannot be certain that the 

reduction of this disincentive would 

have a significant effect on market 

efficiency. Further, the Commission 

previously concluded that the effect of 

behavior changes around the tier cutoffs 

on market efficiency was likely not 

significant.1105 As a result, the 

Commission believes the removal of 

tiers promotes market efficiency but is 

unable to conclude that it will 

significantly improve market efficiency. 

Some commenters stated that the 

Proposed Amendments would harm 

liquidity provision and increase costs 

for investors, thus harming market 

efficiency.1106 The Commission 

recognizes that in charging fees only to 

CEBB and CEBS, the fees will be 

charged to fewer Industry Members than 

under the Original Funding Model and 

that market makers could be charged a 

large proportion of those fees. This 

could increase the importance of 

passing through fees to the ability to 

spread those fees out among more 

market participants. The Commission 

believes that efficiency improvements to 

the ability to pass through fees 1107 will 

help alleviate the risk that CAT fees will 

harm liquidity provision from market 

makers and market efficiency. 

Some commenters argued that under 

the Proposed Amendment all CAT fees 

will ultimately be passed through to 

investors 1108 and retail investors in 

particular,1109 thereby increasing 

transaction costs for investors and 

reducing market efficiency. The 

Commission recognizes that CAT fees 

may be passed through to investors, but 

the Proposed Amendment covers the 

allocation of CAT fees for operating the 

CAT among Participants and Industry 

Members and does not address whether 

Industry Members pass through their 

CAT fees to their customers.1110

Further, Industry Members may have 

passed through CAT fees to their 

customer under the Original Funding 

Model as well. Hence, any impact on 

market efficiency of CAT fees being 

potentially passed through to investors 

under the Proposed Amendment may 

not represent a change to the baseline. 

Finally, while Industry Members may 

pass through CAT fees to their 

customers, the customers also receive a 


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1111See supra note 761 and preceding text. 

1112See SIFMA June Letter at 1–2; SIFMA July 

Letter at 2; Virtu Letter at 2 and 3; and Citadel July 

Letter at 1. 

1113See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84882–84884. 

1114See id. at 84882 n.2800. 

1115See Securities Exchange Act Release No. 

61358, 75 FR 3594 (Nov. 23, 2016) at 3598–3560, 

(for a discussion of the types of trading centers). 

The number of ATSs includes 34 NMS ATSs from 

https://www.sec.gov/divisions/marketreg/form-atsn-filings.htm and 5 OTC ATSs. 

1116See SEC, Market Maker, available at http:// 

www.sec.gov/answers/mktmaker.htm. 

1117See Securities Exchange Act Release No. 

96495, 88 FR at 181 (Jan. 3, 2023). 

1118See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84793. 

1119See id. at 84883. 

1120See id. at 84879. 

1121See Notice, supra note 7, 88 FR at 17104. 

benefit from the CAT. The CAT 

provides more effective oversight of 

market activity, which could increase 

investor confidence, resulting in 

expanded investment opportunities and 

increased trading activity.1111

B. Competition 

Several commenters stated that the 

Proposed Amendments present a 

burden on competition.1112 The 

Commission analyzed the impact of the 

Proposed Amendments on the 

competition for trading services, brokerdealer services, and regulatory services. 

The Commission believes the Proposed 

Amendment could negatively alter the 

competitive position of a few types of 

competitors for trading services and 

broker-dealer services, but the 

Commission also believes that whether 

such changes will render these markets 

less competitive overall is uncertain. 

Specifically, the Commission believes 

that the Executed Share Model could 

provide exchanges with a competitive 

advantage relative to off-exchange 

market makers who internalize in 

providing trading services. Further, the 

Executed Share Model could provide 

competitive advantages to certain 

broker-dealer business models over 

others and could harm the competitive 

position of smaller broker-dealers by 

putting a strain on their net capital. 

1. Baseline 

In the CAT NMS Plan Approval 

Order, the Commission identified 

certain elements of the Original Funding 

Model that could have negative 

implications for competition in trading 

services, broker-dealer services, and 

regulatory services.1113 In addition, the 

Commission stated ‘‘the uncertainty 

regarding how the [Operating] 

Committee allocated the fees used to 

fund the Central Repository could affect 

the conclusions on competition.’’ 1114

a. Trading Services 

The market for trading services, 

which is served by exchanges, ATSs, 

and liquidity providers (internalizers 

and others), relies on competition to 

supply investors with execution 

services at efficient prices. These 

trading venues, which compete to match 

traders with counterparties, provide a 

framework for price negotiation and 

disseminate trading information. The 

competitors for trading services compete 

on a number of dimensions, such as 

transaction fees and execution quality, 

and some attempt to attract order flow 

by paying for that order flow or 

otherwise rebating. 

The market for trading services in 

options and equities consists of 24 

national securities exchanges, which are 

all Plan Participants, and off-exchange 

trading venues including broker-dealer 

internalizers, which execute substantial 

volumes of transactions in equities, and 

39 ATSs, which are not Plan 

Participants.1115 Aside from trading 

venues, exchange market makers 

provide trading services in the securities 

market. These firms stand ready to buy 

and sell a security ‘‘on a regular and 

continuous basis at publicly quoted 

prices.’’ 1116 Exchange market makers 

quote both buy and sell prices in a 

security held in inventory, for their own 

account, for the business purpose of 

generating a profit from trading with a 

spread between the sell and buy prices. 

Off-exchange market makers also stand 

ready to buy and sell out of their own 

inventory, but they do not quote buy 

and sell prices.1117

In the Original Funding Model, the 

portion of fees allocated to the 

exchanges, FINRA, and ATSs would 

have been divided among them 

according to market share of share 

volume and the portion allocated to 

Industry Members would have been 

divided among them according to 

message traffic, including message 

traffic sent to and from an ATS.1118 The 

Operating Committee would have 

allocated fees for the equities market 

and options market separately based on 

market share in each market. The 

Commission concluded that the Original 

Funding Model could have resulted in 

a competitive advantage for exchanges 

over ATSs because message traffic to 

and from an ATS would have generated 

fee obligations on the broker-dealer that 

sponsors the ATS, while exchanges 

would have incurred almost no message 

traffic fees.1119 In addition, the 

Commission recognized uncertainties 

associated with the allocation of fees 

that could have affected competition, 

such as the level of fees at each tier 

(though the entities in the smallest 

activity tier would have paid the lowest 

fees) and whether off-exchange liquidity 

providers would have paid fees similar 

to similarly-sized ATSs and exchanges. 

Finally, the Commission recognized 

potentially differential fees across 

market participants, including lower 

fees for internalizers, which could affect 

competition.1120

b. Broker-Dealer Services 

For simplification, the Commission 

presents its analysis as if the 

competition to provide broker-dealer 

services encompasses one broad market 

with multiple segments even though, in 

terms of competition, it actually may be 

more realistic to think of it as numerous 

inter-related markets. There are 

approximately 1,100 broker-dealers that 

are CAT Reporters.1121 The competition 

to provide broker-dealer services covers 

many different markets for a variety of 

services, including, but not limited to, 

managing orders for customers and 

routing them to various trading venues, 

holding customer funds and securities, 

handling clearance and settlement of 

trades, intermediating between 

customers and carrying/clearing 

brokers, dealing in government bonds, 

private placements of securities, and 

effecting transactions in mutual funds 

that involve transferring funds directly 

to the issuer. Some broker-dealers may 

specialize in just one narrowly defined 

service, while others may provide a 

wide variety of services. 

The market for broker-dealer services 

relies on competition among brokerdealers to provide the services listed 

above to their customers at efficient 

levels of quality and quantity. The 

broker-dealer industry is highly 

competitive, with most business 

concentrated among a small set of large 

broker-dealers and thousands of small 

broker-dealers competing for niche or 

regional segments of the market. Brokerdealers often compete among each other 

through commission rates, service 

quality, and service variety and some 

bundle their services. At present, some 

broker-dealers specializing in individual 

investors charge zero commissions and 

instead cover costs by receiving 

payment for order flow or charging more 

for other services. To limit costs and 

make business more viable, small 

broker-dealers often contract with larger 

broker-dealers or service bureaus to 

handle certain functions, such as 

clearing and execution, or to update 


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1122See Securities Exchange Act Release No. 

63241 (Nov. 3, 2010), 75 FR 69791, 69822 (Nov. 15, 

2010) (Risk Management Controls for Brokers or 

Dealers with Market Access). 

1123See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84885. 

1124See id. at 84884. 

1125See id. at 84887. 

1126See id. at 84887. 

1127See supra note 320 and accompanying text. 

1128See 17 CFR 240.17d–2. 

1129The Commission stated in the Approval 

Order that ‘‘CAT may reduce barriers to entry for 

this market’’ while acknowledging other barriers to 

entry. See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84887, note 2849 (describing the 

barriers to entry addressed by CAT). See also 

Securities Exchange Act Release No. 95388 (July 29, 

2022), 87 FR 49930 (August 12, 2022) at 49961 

(describing the barriers to entry of potential new 

national securities associations more generally). 

1130See Notice, supra note 7, 88 FR at 17115. 

1131See supra Section IV.A.2.b and IV.A.2.c for 

discussions of efficiency gains associated with 

basing CAT fees on shares executed rather than 

message traffic. 

1132Calculated using monthly market volume 

data from CBOE for equities, OCC for options, and 

FINRA for OTC securities. Option contract volume 

is multiplied by 100 and OTC volume is divided by 

100 to establish equivalent share volume to 

reported equity transactions. 

1133See FINRA April 2023 Letter at 7 (‘‘If the 

Funding Model is approved by the Commission, 

FINRA intends to file a rule change to increase 

member fees simultaneous with the filing of any 

proposed rule change to effectuate the Funding 

Model.’’). 

1134This results from dividing the FINRA 

allocation (31%) by its share of each off-exchange 

or OTC Executed Equivalent Share, three, and then 

adding the Industry Member share, two-thirds, to 

the result (31% × 1⁄3 + 2⁄3 = 77%) and ignores what 

Industry Members would pass to investors. Several 

commenters expressed concerns about the 

competitive effects of Industry Members paying 78– 

80% of CAT fees, assuming 100% FINRA pass 

through, and potentially more if exchanges pass 

through as well (See, e.g., Virtu Letter at 1–2 and 

4, FIA PTG Letter at 2–3, and Citadel July Letter at 

16, 21 and 22). The Commission analysis assesses 

this competition from the ability to competitively 

price transaction services. 

1135 If exchanges passed their CAT fees onto their 

members in full, the Industry Members would 

effectively bear 100% of the CAT allocation 

(ignoring what they would pass to investors). 

1136One commenter stated that the Proposed 

Amendments will result in off-exchange 

transactions being assessed higher fees than onexchange transactions (See Citadel July Letter at 

21). 

1137See supra note 1119 and accompanying text. 

their technology.1122 Large brokerdealers typically enjoy economies of 

scale over small broker-dealers and 

compete with each other to service the 

smaller broker-dealers, who are both 

their competitors and their customers. 

Some broker-dealers may offer 

specialized services in one line of 

business mentioned above, while other 

broker-dealers may offer diversified 

services across many different lines of 

businesses. As such, the competitive 

dynamics within each of these specific 

lines of business for broker-dealers is 

different, depending on the number of 

broker-dealers that operate in the given 

segment and the market share that the 

broker-dealers occupy. 

The CAT NMS Plan Approval Order 

described the Original Funding Model 

as an explicit source of financial 

obligation for broker-dealers and 

therefore an important feature to 

evaluate when considering potential 

differential effects of the Plan on 

competition in the market for brokerdealer services.1123 The Commission 

understood that the Original Funding 

Model should have resulted in the 

smallest broker-dealers paying the 

lowest fees,1124 but the Plan did not 

outline how the magnitudes of fees 

would have differed across the tiers or 

whether the smallest broker-dealers 

would have paid the highest permessage fees. The Commission 

concluded that, regardless of the 

differential effects of the CAT NMS Plan 

Funding Model on small versus large 

broker-dealers, the CAT NMS Plan 

Funding Model, in aggregate, would 

have likely not reduced competition in 

the overall market for broker-dealer 

services.1125

c. Regulatory Services 

In the CAT Approval Order, the 

Commission considered the effect of the 

CAT NMS Plan on competition to 

provide regulatory services.1126 SROs 

compete to provide regulatory services 

in at least two ways. First, because SROs 

are responsible for regulating their 

members and the trading within venues 

they operate, their regulatory oversight 

is bundled with the operations of their 

venues. Consequently, for a brokerdealer, selecting a trading venue also 

involves being subject to regulatory 

oversight of the SRO that operates that 

venue. Second, SROs can provide 

regulatory services for other SROs 

through the use of RSAs.1127 In 

addition, some regulatory activity is 

coordinated among SROs through 

multiparty 17d–2 agreements.1128

FINRA is the primary provider of 

contracted regulatory services. Any new 

competitors for regulatory services 

would face significant barriers to entry 

in building up the necessary expertise 

and technical capabilities.1129

RSAs are contracts that would not be 

renegotiated as often as CAT Fees would 

vary, which limits the precision to 

which FINRA can increase the charges 

on these agreements as a mechanism to 

pass through its CAT Fees. Since the 

start of the CAT NMS Plan 

implementation, the Commission has 

not observed a change in the 

competition for regulatory services. 

2. Analysis of the Proposed Amendment 

a. Trading Services 

The Participants state that, ‘‘the 

[Executed Share Model] would not 

impose an inappropriate burden on 

competition,’’ arguing that transactionbased models for fee recovery are 

already in place.1130 The Commission 

agrees that transaction-based models do 

offer some efficiency benefits over the 

Original Funding Model,1131 but 

believes the Proposed Amendment may 

provide a competitive advantage to 

exchanges and a competitive 

disadvantage to executing brokerdealers who internalize. The effects on 

these competitors might not affect the 

overall level of competition because the 

fees are expected to be relatively small. 

The Commission believes that the 

Proposed Amendment may provide a 

competitive advantage for exchanges 

over off-exchange trading venues, but 

this advantage may not be large relative 

to the level of competition and relative 

to the advantages for exchanges in the 

Original Funding Model. In particular, 

the Executed Share Model will allocate 

higher CAT fee allocations to Industry 

Members relative to Participants, but 

exchanges, one type of Participant, 

could be in a better position to avoid 

raising transaction fees to offset their 

CAT fee allocations. Using March 2023 

data, the Commission estimates that 

31% of share volume is reported to 

FINRA trade reporting facilities while 

the remaining 69% is reported by 

exchanges.1132 The Commission 

believes that FINRA’s allocation of CAT 

fees likely will be passed through to 

Industry Members.1133 If FINRA’s CAT 

fees are passed through to Industry 

Members, the Commission believes that 

Industry Members could bear 77% of 

CAT costs,1134 assuming that the 

exchanges do not also directly passthrough their CAT fee allocations to 

their members.1135 In fact, if the 

exchanges are able to offset their CAT 

fees in ways other than increasing 

transaction fees on exchanges, the cost 

to transact on ATSs or directly through 

broker-dealers will appear to increase 

more in response to CAT fee allocations, 

providing exchanges with a competitive 

advantage.1136 This is particularly 

probable for exchanges who do not rely 

solely on revenues from transaction 

fees. However, ATSs might be better off 

relative to exchanges under the 

Executed Share Model than they would 

have been under the Original Share 

Model, which would have resulted in a 

competitive disadvantage for ATSs.1137

The Executed Share Model could 

increase the costs of internalization 


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1138See supra note 1120 and accompanying text. 

1139See CAT LLC July 2023 Response Letter at 9– 

10. 

1140One commenter stated that many executing 

brokers will absorb CAT fees (See Virtu Letter at 5). 

However, the Participants argue that the executing 

brokers may determine to pass their CAT fees 

through to their own customers and thus may not 

absorb the CAT fees (See CAT LLC July 2023 

Response Letter at 8–9). Another commenter stated 

that fees charged on proprietary trading cannot be 

passed through (See Citadel July Letter at 19–20; see 

also Citadel August Letter at 3). This latter 

commenter also stated that the potential to pass 

through some CAT costs does not alleviate the 

competitive issues (See Citadel July Letter at 19; see 

also Citadel August Letter at 4). 

1141See supra note 1120 and accompanying text 

for a discussion of the effect of the Original Funding 

Model on ATSs. 

1142See supra notes 1100, 1101, and 1102 and 

accompanying text for analysis of the potential 

magnitude of fees under the Executed Share Model. 

1143See DASH January 2023 Letter at 1; DASH 

April 2023 Letter at 1. 1144See DASH January 2023 Letter at 2. 

1145See supra Section III.A.4 for further 

discussion of the comments on net capital and the 

Commission’s response to those comments. 

1146The effect on net capital comes when 

Industry Members record that they expect to receive 

a pass-through from customers as an asset (a 

‘‘booked’’ receivable) more than 30 days before 

when their customers pay. If the Industry Members 

book a receivable for the pass-through more than 30 

days before they collect, they cannot count that 

receivable as an asset toward net capital. If Industry 

Members instead do not pass-through the fees, they 

will not have a receivable at all to count toward net 

capital. 

relative to agency order matching (or 

riskless principal), creating a 

competitive disadvantage for the 

internalization model, reversing the 

competitive advantage internalizers 

would have had under the Original 

Funding Model.1138 Specifically, offexchange market makers will be 

assessed at least CEBB or CEBS for their 

internalizing trades, both when trading 

with non-broker-dealer customers or 

broker-dealers who are not FINRA 

members and also when internalizing 

the orders of FINRA members or their 

customers. However, they do not have 

more than one customer to which to 

directly pass-through this fee. In 

particular, if an exchange were to 

directly pass-through its CAT 

Assessments, it could split its 1⁄3 fee 

across buyers and sellers, or 1⁄6 each 

(each side would also have a 1⁄3 CAT 

assessment as CEBB or CEBS for a total 

of 1⁄2). However, for internalizers to 

directly pass-through their fees would 

mean the internalized customer 

(whether an Industry Member or not) 

would pay 2⁄3 of the fee plus whatever 

pass-through they pay for the FINRA 

assessment (up to 1⁄3). Alternatively, an 

internalizer could also recover CAT 

assessments by reducing payment for 

order flow or price improvement.1139

Any of these alternatives could hurt 

internalizers competitively and create 

the incentive to not fully pass-through 

their fees,1140 thus reducing their profit 

margins. In addition, some executing 

brokers could be charged two-thirds of 

the fee per Executed Equivalent Share 

when internalizing the orders of 

customers or non-FINRA broker-dealers, 

though this is likely rare. 

More generally, any market makers, 

whether on exchange or not, will be 

charged fees for their proprietary 

trading, and this could create 

competitive advantages in certain 

situations. The Commission recognizes 

that this likely would result in onexchange market makers in equities 

being at a competitive disadvantage in 

having to absorb the fees because they 

do not know the identities of their 

counter-parties to directly pass-through 

the fees and they do not have other 

arrangements, such as payment for order 

flow, that could facilitate indirectly 

passing-through fees. Because other 

liquidity providers who post limit 

orders and quotes to trade would face 

the same cost, the displayed quotations 

on exchanges could appear to be less 

competitive overall but would likely 

increase only marginally—enough to 

cover CAT assessments. Such a 

marginal increase could also help to 

offset any disadvantage to 

internalization because marginally 

wider spreads could help internalizers 

avoid reductions in price improvement 

and payment for order flow. In options, 

however, the Executed Share Model 

could result in exchange members who 

bring an order to an exchange 

experiencing a competitive advantage in 

price improvement auctions. In 

particular, because knowing who is 

responsible for the order allows them to 

pass-through their fees, they can bid 

more competitively in the auctions than 

can exchange members who cannot 

directly pass-through the fees. 

However, the Commission believes 

that the magnitude of changes in any 

competitive advantages or 

disadvantages is unlikely to 

significantly affect order flow because 

fee differences between competing 

venues are only one of many factors 

(such as availability of non-displayed 

order types and price impact 

characteristics of transactions on 

different venues) that broker-dealers 

consider when choosing how to route 

their order flow. Further, the Executed 

Share Model levels the playing field 

between exchanges and ATSs relative to 

the Original Funding Model.1141 In 

particular, the assessments and any 

pass-throughs paid by broker-dealers or 

investors of an execution on an ATS 

could be similar to those of an execution 

on an exchange, depending on how (and 

whether) ATSs and exchanges choose to 

pass-through their fees. Further, the 

magnitude of the fees in the example in 

Exhibit C are small relative to current 

transaction costs.1142

b. Broker-Dealer Services 

The Commission believes that the 

Executed Share Model alleviates 

concerns with the Original Funding 

Model about the allocation of fees across 

small and large broker-dealers. In 

particular, by charging CEBBs and 

CEBSs based on Executed Equivalent 

Shares, small broker-dealers are less 

likely to face CAT fees that are outsized 

relative to their revenue, whether they 

act as executing brokers or are charged 

pass-throughs by executing brokers. 

This could reduce barriers to entry. 

On the other hand, the efficiency 

gains in passing through fees from the 

Executed Share Model will not be 

evenly distributed across broker-dealer 

competitive strategies. In particular, 

where competition has driven 

commissions to zero, the Executed 

Share Model Fees are more easily 

passed through to customers of brokerdealers who offer a wider variety of 

services than for broker-dealers who do 

not. These latter broker-dealers could be 

at a competitive disadvantage if they 

have no other option but to absorb such 

fees or accept reduced payment for 

order flow as a form of pass-through 

from executing brokers. Because more 

established broker-dealers are more 

likely to be the ones offering a wider 

variety of services, this effect could 

increase barriers to entry. 

Furthermore, as one commenter 

stated, there may be capital 

requirements associated with carrying 

the receivable associated with passingthrough these CAT fees, which could be 

burdensome for small and mediumsized Executing Brokers.1143 According 

to this commenter, these burdens, 

coupled with FINRA Rule 15c3–1 will 

significantly impact healthy small and 

medium-sized brokers.1144 If so, the 

Executed Share Model could increase 

barriers to entry in providing brokerdealer services. However, whether and 

how to pass-on the CAT assessments is 

at the discretion of Executing 

Brokers.1145 Further, the economic 

effect of not passing-on fees is 

equivalent to passing-on fees to clients 

who pay more than 30 days after the 

Executing Broker has booked the 

receivable.1146 Therefore, this issue 

boils down to the magnitude of the 

potential costs and whether small and 

medium-sized Executing Brokers are 

treated the same as others. If small and 


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62686 Federal Register / Vol. 88, No. 175 / Tuesday, September 12, 2023 / Notices 

1147See Citadel July Letter at 19. 

1148See supra Section IV.A.2.a. 

1149Broker dealers that compete as electronic 

liquidity providers in high-volume securities are 

likely to have the highest executed share volume 

and thus pay the highest fees. However, these 

broker-dealers compete against each other in 

providing this service, and thus are likely to be 

similarly burdened by fees under the amendment. 

Broker-dealers that pay the lowest or no fees are 

unlikely to compete in this activity because such 

activity entails high fixed costs in specialized 

technology and thus are unlikely to gain a 

competitive advantage from the amendment. 

1150The Participants state, ‘‘[b]y treating each 

Participant the same, the CAT fees would not 

become a competitive issue by and among the 

Participants.’’ See Notice supra note 7, 88 FR at 

17115. See also a similar statement at 17122. This 

conclusion does not seem to address competition to 

provide regulatory services specifically. However, 

the comments about the treatment of FINRA in, for 

example, the FINRA April 2023 Letter at 2–5 

warrants considering this competition given 

FINRA’s position in providing RSAs. 

1151See FINRA April 2023 Letter at 7 (‘‘If the 

Funding Model is approved by the Commission, 

FINRA intends to file a rule change to increase 

member fees simultaneous with the filing of any 

proposed rule change to effectuate the Funding 

Model.’’). 

1152See CAT NMS Plan Approval Order, supra 

note 2, 81 FR at 84893. 

1153See Notice, supra note 7, 88 FR at 17115. 

1154See, e.g., DASH April 2023 Letter at 1; Virtu 

Letter at 2; SIFMA AMG at 2–3. 

1155See supra Section III.A.4 for a response to a 

commenter’s concerns regarding net capital and 

supra Section IV.B.2.b for an explanation of why 

the net capital effects are like to be small. 

1156See supra notes 1100, 1101, and 1102 and 

accompanying text for analysis of the potential 

magnitude of fees under the Executed Share Model. 

1157 15 U.S.C. 78k–1. 

1158 17 CFR 242.608(b)(2). 

1159See 15 U.S.C. 78k–1(a)(3)(B). 

1160See 17 CFR 242.608. 

1161See 17 CFR 242.608(b)(2). 

1162 15 U.S.C. 78k–1. 

1163 17 CFR 242.608(b)(2). 

medium-sized Executing Brokers have 

lower trading activity than large 

Executing Brokers, their CAT 

assessments will be lower as well. 

Further, the per equivalent share fee rate 

will be the same across all Executing 

Brokers in the Executed Share Model 

whereas it would not have been under 

the Original Funding Model. In fact, 

small broker-dealers, including 

Executing Brokers, could be better 

positioned competitively under the 

Executed Share Model than under the 

Original Funding model, which 

contained uncertainty in the tier 

structure and whether small brokerdealers would have paid more in 

assessments than they earn in revenues. 

One commenter stated that the top 10 

(20) Industry Members would be 

allocated 50% (70%) of the fees under 

the Executed Share Model, ‘‘unduly 

burdening competition’’.1147 The 

Commission has considered this 

concentration and believes that several 

factors alleviate this concern. In 

particular, the Commission believes that 

many of these Industry Members will 

pass through much of their fees to client 

broker-dealers.1148 In addition, the 

Commission believes that the Industry 

Members that will be charged the most 

under the Proposed Amendments 

engage in different services than brokerdealers who are charged the least or not 

charged fees at all under the Proposed 

Amendments.1149 Therefore, these two 

sets of broker-dealers are not direct 

competitors. 

c. Regulatory Services 

The Commission recognizes that if 

FINRA were to pass through its CAT 

fees by increasing its fees for RSAs over 

time, FINRA could be less competitive 

in providing regulatory services.1150

This could increase the chances either 

of exchanges conducting more of their 

own regulatory services or of another 

SRO attempting to compete with FINRA 

for RSAs. Indeed, such potential 

competitors would not have the burden 

of having to cover CAT Fees for offexchange and OTC volume. However, 

because RSAs are not renegotiated as 

often as CAT Fees are likely to change, 

FINRA will likely not attempt to cover 

all of their share of CAT costs by 

increasing what they charge for 

RSAs.1151 Further, even with access to 

CAT, the barriers to entry in competing 

for RSAs could limit new competitors. 

C. Capital Formation 

In the CAT NMS Plan Approval 

Order, the Commission stated that the 

Original Funding Model for CAT was 

not wholly certain and, thus, stated the 

‘‘view that there is uncertainty 

concerning the extent to which 

investors will bear Plan costs and 

consequently to what extent Plan costs 

could affect investors’ allocation of 

capital.’’ 1152 The Participants state that 

they believe the Proposed Amendment 

would have a positive effect on capital 

formation due to improvements in 

investor confidence.1153

The Commission recognizes that the 

Proposed Amendment may have 

negative effects on capital formation if 

the CAT fees ultimately borne by 

investors are large enough to affect 

investors’ allocation of capital or if 

capital constraints of small or mid-sized 

broker-dealers significantly hinder 

innovating to find more efficient ways 

to service investors.1154 However, the 

Commission believes that the net capital 

effect would not be significant.1155

Further, the additional costs borne by 

investors are likely small relative to 

current transaction costs.1156 While 

recognizing that the Executed Share 

Model might change which investors 

ultimately bear CAT costs, the Executed 

Share Model might not change the total 

costs borne by investors relative to the 

Original Funding Model. 

V. Conclusion 

For the reasons discussed, the 

Commission, pursuant to Section 11A of 

the Exchange Act,1157 and Rule 

608(b)(2) 1158 thereunder, is approving 

the Proposed Amendment. Section 11A 

of the Exchange Act authorizes the 

Commission, by rule or order, to 

authorize or require the self-regulatory 

organizations to act jointly with respect 

to matters as to which they share 

authority under the Exchange Act in 

planning, developing, operating, or 

regulating a facility of the national 

market system.1159 Rule 608 of 

Regulation NMS authorizes two or more 

SROs, acting jointly, to file with the 

Commission proposed amendments to 

an effective NMS plan,1160 and further 

provides that the Commission shall 

approve an amendment to an effective 

NMS plan if it finds that the amendment 

is necessary or appropriate in the public 

interest, for the protection of investors 

and the maintenance of fair and orderly 

markets, to remove impediments to, and 

perfect the mechanisms of, a national 

market system, or otherwise in 

furtherance of the purposes of the 

Exchange Act.1161

For the reasons set forth above, the 

Commission finds that the Proposed 

Amendment meets the required 

standard. 

It is therefore ordered, pursuant to 

Section 11A of the Exchange Act,1162

and Rule 608(b)(2) 1163 thereunder, that 

the Proposed Amendment (File No. 4– 

698) be, and hereby is, approved. 

By the Commission. 

J. Matthew DeLesDernier, 

Deputy Secretary. 

[FR Doc. 2023–19525 Filed 9–11–23; 8:45 am] 

BILLING CODE 8011–01–P 


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