[Federal Register Volume 89, Number 181 (Wednesday, September 18, 2024)]
[Notices]
[Pages 76626-76673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21169]



[[Page 76625]]

Vol. 89

Wednesday,

No. 181

September 18, 2024

Part II





Securities and Exchange Commission





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Self-Regulatory Organizations; Financial Industry Regulatory Authority, 
Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Amend FINRA Rule 6897 To Establish Fees for Industry Members 
Related to Certain Historical Costs of the National Market System Plan 
Governing the Consolidated Audit Trail; Notice

Federal Register / Vol. 89 , No. 181 / Wednesday, September 18, 2024 
/ Notices

[[Page 76626]]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101012; File No. SR-FINRA-2024-013]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend FINRA Rule 6897 To Establish Fees for 
Industry Members Related to Certain Historical Costs of the National 
Market System Plan Governing the Consolidated Audit Trail

September 12, 2024.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on September 5, 2024, the Financial 
Industry Regulatory Authority, Inc. (``FINRA'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by FINRA. FINRA has designated the proposed rule 
change as ``establishing or changing a due, fee or other charge'' under 
Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposal effective upon receipt of 
this filing by the Commission. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 6897 (Consolidated Audit 
Trail Funding Fees) to establish fees for Industry Members \5\ related 
to certain historical costs of the National Market System Plan 
Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or 
``Plan'') incurred prior to January 1, 2022. These fees would be 
payable to Consolidated Audit Trail, LLC (``CAT LLC'' or ``the 
Company'') \6\ and referred to as Historical CAT Assessment 1.
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    \5\ An ``Industry Member'' is defined as ``a member of a 
national securities exchange or a member of a national securities 
association.'' See FINRA Rule 6810(u). See also Section 1.1 of the 
CAT NMS Plan. Unless otherwise specified, capitalized terms used in 
this rule filing are defined as set forth in the CAT NMS Plan and/or 
the CAT Compliance Rule. See FINRA Rule 6800 Series (Consolidated 
Audit Trail Compliance Rule).
    \6\ The term ``CAT LLC'' may be used to refer to Consolidated 
Audit Trail, LLC or CAT NMS, LLC, depending on the context.
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    The fee rate for Historical CAT Assessment 1 will be $0.000013 per 
executed equivalent share. CAT Executing Brokers will receive their 
first monthly invoice for Historical CAT Assessment 1 in November 2024 
calculated based on their transactions as CAT Executing Brokers for the 
Buyer (``CEBB'') and/or CAT Executing Brokers for the Seller (``CEBS'') 
in October 2024.
    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    On July 11, 2012, the Commission adopted Rule 613 of Regulation 
NMS, which required the self-regulatory organizations (``SROs'') to 
submit a national market system (``NMS'') plan to create, implement and 
maintain a consolidated audit trail that would capture customer and 
order event information for orders in NMS securities across all 
markets, from the time of order inception through routing, 
cancellation, modification or execution.\7\ On November 15, 2016, the 
Commission approved the CAT NMS Plan.\8\ Under the CAT NMS Plan, the 
Operating Committee has the discretion to establish funding for CAT LLC 
to operate the CAT, including establishing fees for Industry Members to 
be assessed by CAT LLC that would be implemented on behalf of CAT LLC 
by the Participants.\9\ The Operating Committee adopted a revised 
funding model to fund the CAT (``CAT Funding Model''). On September 6, 
2023, the Commission approved the CAT Funding Model, after concluding 
that the model was reasonable and that it satisfied the requirements of 
Section 11A of the Exchange Act and Rule 608 thereunder.\10\
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    \7\ See Securities Exchange Act Release. No. 67457 (July 18, 
2012), 77 FR 45721 (August 1, 2012) (``Rule 613 Adopting Release'').
    \8\ See Securities Exchange Act Release. No. 79318 (November 15, 
2016), 81 FR 84696 (November 23, 2016) (``CAT NMS Plan Approval 
Order'').
    \9\ Section 11.1(b) of the CAT NMS Plan.
    \10\ See Securities Exchange Act Release No. 98290 (September 6, 
2023), 88 FR 62628 (September 12, 2023) (``CAT Funding Model 
Approval Order'').
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    The CAT Funding Model provides a framework for the recovery of the 
costs to create, develop and maintain the CAT, including providing a 
method for allocating costs to fund the CAT among Participants and 
Industry Members. The CAT Funding Model establishes two categories of 
fees: (1) CAT fees assessed by CAT LLC and payable by certain Industry 
Members to recover a portion of historical CAT costs previously paid by 
the Participants (``Historical CAT Assessment'' fees); and (2) CAT fees 
assessed by CAT LLC and payable by Participants and Industry Members to 
fund prospective CAT costs (``Prospective CAT Costs'' fees).\11\
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    \11\ Under the CAT Funding Model, the Operating Committee may 
establish one or more Historical CAT Assessments. See Section 
11.3(b) of the CAT NMS Plan. This filing only establishes Historical 
CAT Assessment 1 related to certain Historical CAT Costs as 
described herein; it does not address any other potential Historical 
CAT Assessment related to other Historical CAT Costs. In addition, 
under the CAT Funding Model, the Operating Committee also may 
establish CAT Fees related to CAT costs going forward. See Section 
11.3(a) of the CAT NMS Plan. This filing does not address any 
potential CAT Fees related to CAT costs going forward. Any such 
other fee for any other Historical CAT Assessment or CAT Fee for 
Prospective CAT Costs will be subject to a separate fee filing.
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    Under the CAT Funding Model, ``[t]he Operating Committee will 
establish one or more fees (each a `Historical CAT Assessment') to be 
payable by Industry Members with regard to CAT costs previously paid by 
the Participants (`Past CAT Costs').'' \12\ In establishing a 
Historical CAT Assessment, the Operating Committee will determine a 
``Historical Recovery Period'' and calculate a ``Historical Fee Rate'' 
for that Historical Recovery Period. Then, for each month in which a 
Historical CAT Assessment is in effect, each CEBB and CEBS would be 
required to pay the 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

[[Page 76627]]

transaction by one-third and by the Historical Fee Rate.\13\
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    \12\ Section 11.3(b) of the CAT NMS Plan.
    \13\ In approving the CAT Funding Model, the Commission stated 
that, ``[i]n the Commission's view, the proposed recovery of the 
Past CAT Costs via the Historical CAT Assessment is reasonable.'' 
See CAT Funding Model Approval Order, 88 FR 62628, 62662.
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    Each Historical CAT Assessment to be paid by CEBBs and CEBSs is 
designed to contribute toward the recovery of two-thirds of the 
Historical CAT Costs. Because the Participants previously have paid 
Past CAT Costs via loans to the Company, the Participants would not be 
required to pay any Historical CAT Assessment. In lieu of a Historical 
CAT Assessment, the Participants' one-third share of Historical CAT 
Costs will be paid by the cancellation of loans made by the 
Participants to the Company on a pro rata basis based on the 
outstanding loan amounts due under the loans, instead of through the 
payment of a CAT fee.\14\ In addition, the Participants also will be 
100% responsible for certain Excluded Costs (as discussed below).
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    \14\ Section 11.3(b)(ii) of the CAT NMS Plan.
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    CAT LLC proposes to charge CEBBs and CEBSs (as described in more 
detail below) Historical CAT Assessment 1 to recover certain historical 
CAT costs incurred prior to January 1, 2022, in accordance with the CAT 
Funding Model.\15\ To implement this fee on behalf of CAT LLC, the CAT 
NMS Plan requires the Participants to ``file with the SEC under Section 
19(b) of the Exchange Act any such fees on Industry Members that the 
Operating Committee approves, and such fees shall be labeled as 
`Consolidated Audit Trail Funding Fees.''' \16\ The Plan further states 
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.'' \17\ Accordingly, the purpose of this filing is to 
implement a Historical CAT Assessment on behalf of CAT LLC for Industry 
Members, referred to as Historical CAT Assessment 1, in accordance with 
the CAT NMS Plan.\18\
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    \15\ See CAT Funding Model Approval Order.
    \16\ Section 11.1(b) of the CAT NMS Plan.
    \17\ Section 11.3(b)(iii)(B)(I) of the CAT NMS Plan.
    \18\ Note that there may be one or more Historical CAT 
Assessments. Section 11.3(b) of the CAT NMS Plan.
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    FINRA previously filed a fee filing to implement Historical CAT 
Assessment 1. On January 17, 2024, the SEC published this prior filing 
for Historical CAT Assessment 1, temporarily suspended the fee filing, 
and instituted proceedings to determine whether to approve or 
disapprove the fee filing.\19\ FINRA has withdrawn its previous fee 
filing for Historical CAT Assessment 1.\20\ This Historical CAT 
Assessment 1 replaces the previous Historical CAT Assessment 1 that was 
previously filed with the Commission.
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    \19\ See Securities Exchange Act Release No. 99372 (January 17, 
2024), 89 FR 11153 (February 13, 2024) (Notice of Filing of File No. 
SR-FINRA-2024-003).
    \20\ See supra note 19.
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1. CAT Executing Brokers
    Historical CAT Assessment 1 will be charged to each CEBB and CEBS 
for each applicable transaction in Eligible Securities.\21\ The CAT NMS 
Plan defines a ``CAT Executing Broker'' to mean:
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    \21\ In its approval of the CAT Funding Model, the Commission 
determined that charging CAT fees to CAT Executing Brokers was 
reasonable. In reaching this conclusion the Commission noted that 
the use of CAT Executing Brokers is appropriate because the CAT 
Funding Model is based upon the calculation of executed equivalent 
shares, and, therefore, charging CAT Executing Brokers would reflect 
their executing role in each transaction. Furthermore, the 
Commission noted that, because CAT Executing Brokers are already 
identified in transaction reports from the exchanges and FINRA's 
equity trade reporting facilities recorded in CAT Data, charging CAT 
Executing Brokers could streamline the billing process. See CAT 
Funding Model Approval Order, 88 FR 62628, 62629.

    (a) with respect to a transaction in an Eligible Security that 
is executed on an exchange, the Industry Member identified as the 
Industry Member responsible for the order on the buy-side of the 
transaction and the Industry Member responsible for the sell-side of 
the transaction in the equity order trade event and option trade 
event in the CAT Data submitted to the CAT by the relevant exchange 
pursuant to the Participant Technical Specifications; and
    (b) with respect to a transaction in an Eligible Security that 
is executed otherwise than on an exchange and required to be 
reported to an equity trade reporting facility of a registered 
national securities association, the Industry Member identified as 
the executing broker and the Industry Member identified as the 
contra-side executing broker in the TRF/ORF/ADF transaction data 
event in the CAT Data submitted to the CAT by FINRA pursuant to the 
Participant Technical Specifications; provided, however, in those 
circumstances where there is a non-Industry Member identified as the 
contra-side executing broker in the TRF/ORF/ADF transaction data 
event or no contra-side executing broker is identified in the TRF/
ORF/ADF transaction data event, then the Industry Member identified 
as the executing broker in the TRF/ORF/ADF transaction data event 
would be treated as CAT Executing Broker for the Buyer and for the 
Seller.\22\
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    \22\ Section 1.1 of the CAT NMS Plan. Note that CEBBs and CEBSs 
may, but are not required to, pass-through their CAT fees to their 
clients, who may, in turn, pass their fees to their clients until 
they are imposed ultimately on the account that executed the 
transaction. See CAT Funding Model Approval Order, 88 FR 62628, 
62649.

    Fields Nos. 26 and 28 of the Participant Technical Specifications, 
listed below, indicate the CAT Executing Brokers for transactions 
executed otherwise than on an exchange.
    TRF/ORF/ADF Transaction Data Event.\23\
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    \23\ See Table 61, Section 6.1 (TRF/ORF/ADF Transaction Data 
Event) of the CAT Reporting Technical Specifications for Plan 
Participants.

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          No.                       Field name                    Data type          Description     Include key
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26....................  reportingExecutingMpid............  Member Alias........  MPID of the        R
                                                                                   executing party.
28....................  contraExecutingMpid...............  Member Alias........  MPID of the        C
                                                                                   contra-side
                                                                                   executing party.
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(2) Calculation of Historical Fee Rate 1
    The Operating Committee determined the Historical Fee Rate to be 
used in calculating Historical CAT Assessment 1 (``Historical Fee Rate 
1'') by dividing the Historical CAT Costs for Historical CAT Assessment 
1 (``Historical CAT Costs 1'') by the projected total executed share 
volume of all transactions in Eligible Securities for the Historical 
Recovery Period for Historical CAT Assessment 1 (``Historical Recovery 
Period 1''), as discussed in detail below. Based on this calculation, 
the Operating Committee has determined that Historical Fee Rate 1 would 
be $0.00003994969693072937 per executed equivalent share. This rate is 
then divided by three and rounded to determine the fee rate of 
$0.000013 per executed equivalent share that will be assessed to CEBBs 
and CEBSs, as also discussed in detail below.

(A) Executed Equivalent Shares for Transactions in Eligible Securities

    Under the CAT NMS Plan, for purposes of calculating each Historical 
CAT Assessment, executed equivalent shares in a transaction in Eligible 
Securities will be reasonably counted as follows: (1) each executed 
share for a transaction in NMS Stocks will be

[[Page 76628]]

counted as one executed equivalent share; (2) each executed contract 
for a transaction in Listed Options will be counted based on the 
multiplier applicable to the specific Listed Options (i.e., 100 
executed equivalent shares or such other applicable multiplier); and 
(3) each executed share for a transaction in OTC Equity Securities 
shall be counted as 0.01 executed equivalent share.\24\
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    \24\ Section 11.3(a)(i)(B) and 11.3(b)(i)(B) of the CAT NMS 
Plan. In approving the CAT Funding Model, the Commission concluded 
that ``the use of executed equivalent share volume as the basis of 
the proposed cost allocation methodology is reasonable and 
consistent with the approach taken by the funding principles of the 
CAT NMS Plan.'' See CAT Funding Model Approval Order, 88 FR 62628, 
62640.
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(B) Historical CAT Costs 1

    The CAT NMS Plan 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. Each 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.'' \25\ As described in detail below, 
Historical CAT Costs 1 would be $318,059,819. This figure includes Past 
CAT Costs of $401,312,909 minus certain Excluded Costs of $83,253,090. 
Participants collectively will remain responsible for one-third of 
Historical CAT Costs 1 (which is $106,019,939.67), plus the Excluded 
Costs of $83,253,090. CEBBs collectively will be responsible for one-
third of Historical CAT Costs 1 (which is $106,019,939.67), and CEBSs 
collectively will be responsible for one-third of Historical CAT Costs 
1 (which is $106,019,939.67).
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    \25\ Section 11.3(b)(i)(C) of the CAT NMS Plan.
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    The following describes in detail Historical CAT Costs 1 with 
regard to four separate historical time periods as well as Past CAT 
Costs excluded from Historical CAT Costs 1 (``Excluded Costs''). The 
following cost details are provided in accordance with the requirement 
in the CAT NMS Plan to provide in the fee filing ``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.'' \26\ 
Each of the costs described below are reasonable, appropriate and 
necessary for the creation, implementation and maintenance of CAT.
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    \26\ Section 11.3(b)(iii)(B)(II)(B) of the CAT NMS Plan.
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(i) Historical CAT Costs Incurred Prior to June 22, 2020 (Pre-FAM 
Costs)
    Historical CAT Costs 1 would include costs incurred by CAT prior to 
June 22, 2020 (``Pre-FAM Period'') and already funded by the 
Participants, excluding Excluded Costs (described further below). 
Historical CAT Costs 1 would include costs for the Pre-FAM Period of 
$124,290,730. The Participants would remain responsible for one-third 
of this cost (which they have previously paid) ($41,430,243.33), and 
Industry Members would be responsible for the remaining two-thirds, 
with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third 
($41,430,243.33). These costs do not include Excluded Costs, as 
discussed further below. The following table \27\ breaks down 
Historical CAT Costs 1 for the Pre-FAM Period into the categories set 
forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
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    \27\ The costs described in this table of costs for the Pre-FAM 
Period were calculated based upon CAT LLC's review of applicable 
bills and invoices and related financial statements. CAT LLC 
financial statements are available on the CAT website. In addition, 
in accordance with Section 6.6(a)(i) of the CAT NMS Plan, in 2018 
CAT LLC provided the SEC with ``an independent audit of fees, costs, 
and expenses incurred by the Participants on behalf of the Company 
prior to the Effective Date of the Plan that will be publicly 
available.'' The audit is available on the CAT website.

------------------------------------------------------------------------
                                             Historical CAT costs 1 for
            Operating expense              Pre-FAM Period (prior to June
                                                     22, 2020)
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Capitalized Developed Technology Costs *.                    $51,847,150
Technology Costs.........................                     33,568,579
    Cloud Hosting Services...............                     10,268,840
    Operating Fees.......................                     21,085,485
    CAIS Operating Fees..................                      2,072,908
    Change Request Fees..................                        141,346
Legal....................................                     19,674,463
Consulting...............................                     17,013,414
Insurance................................                        880,419
Professional and administration..........                      1,082,036
Public relations.........................                        224,669
                                          ------------------------------
        Total Operating Expenses.........                    124,290,730
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* The non-cash amortization of these capitalized developed technology
  costs of $2,115,545 incurred during the period prior to June 22, 2020
  have been appropriately excluded from the above table.\28\

    The Pre-FAM Period includes a broad range of CAT-related activity 
from 2012 through June 22, 2020, including the evaluation of the 
requirements of SEC Rule 613, the development of the CAT NMS Plan, the 
evaluation and selection of the initial and successor Plan Processors, 
the commencement of the creation and implementation of the CAT to 
comply with Rule 613 and the CAT NMS Plan, including technical 
specifications for transaction reporting and regulatory access, and 
related technology and the commencement of reporting to the CAT. The 
following describes the costs for each of the categories for the Pre-
FAM Period.
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    \28\ With respect to certain costs that were ``appropriately 
excluded,'' such excluded costs relate to the amortization of 
capitalized technology costs, which are amortized over the life of 
the Plan Processor Agreement. As such costs have already been 
otherwise reflected in the filing, their inclusion would double 
count the capitalized technology costs. In addition, amortization is 
a non-cash expense.
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(a) Technology Costs--Cloud Hosting Services
    The $10,268,840 in technology costs for cloud hosting services 
represent

[[Page 76629]]

costs incurred for services provided by the cloud services provider for 
the CAT, Amazon Web Services, Inc. (``AWS''), during the Pre-FAM 
Period.
    As part of its proposal for acting as the successor Plan Processor 
for the CAT, FINRA CAT, LLC (``FCAT'') selected AWS as a subcontractor 
to provide cloud hosting services. In 2019, after reviewing the 
capabilities of other cloud services providers, FCAT determined that 
AWS was the only cloud services provider at that time sufficiently 
mature and capable of providing the full suite of necessary cloud 
services for the CAT, including, for example, the security, resiliency 
and complexity necessary for the CAT computing requirements. The use of 
cloud hosting services is standard for this type of high-volume data 
activity and reasonable and necessary for implementation of the CAT, 
particularly given the substantial data volumes associated with the 
CAT.
    Under the Plan Processor Agreement with FCAT, CAT LLC is required 
to pay FCAT the fees incurred by the Plan Processor for cloud hosting 
services provided by AWS as FCAT's subcontrator [sic] on a monthly 
basis for the cloud hosting services, and FCAT, in turn, pays such fees 
to AWS. The fees for cloud hosting services were negotiated by FCAT on 
an arm's length basis with the goals of managing cost and receiving 
services required to comply with the CAT NMS Plan and Rule 613, taking 
into consideration a variety of factors, including the expected volume 
of data, the breadth of services provided and market rates for similar 
services. The fees for cloud hosting services during the Pre-FAM Period 
were paid to FCAT by CAT NMS LLC \29\ and subsequently Consolidated 
Audit Trail, LLC (as previously noted, both entities are referred to 
generally as ``CAT LLC''),\30\ and FCAT, in turn, paid AWS. CAT LLC was 
funded via loan contributions by the Participants.\31\
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    \29\ CAT NMS, LLC was formed by FINRA and the U.S. national 
securities exchanges to implement the requirements of SEC Rule 613 
under the Exchange Act. SEC Rule 613 required the SROs to jointly 
submit to the SEC the CAT NMS Plan to create, implement and maintain 
the CAT. The SEC approved the CAT NMS Plan on November 15, 2016. See 
CAT NMS Plan Approval Order, supra note 8.
    \30\ On August 29, 2019, the Participants formed a new Delaware 
limited liability company named Consolidated Audit Trail, LLC for 
the purpose of conducting activities related to the CAT from and 
after the effectiveness of the proposed amendment of the CAT NMS 
Plan to replace CAT NMS, LLC. See Securities Exchange Act Release 
No. 87149 (September 27, 2019), 84 FR 52905 (October 3, 2019).
    \31\ For each of the costs paid by CAT NMS, LLC and Consolidated 
Audit Trail, LLC as discussed throughout this filing, CAT NMS, LLC 
and Consolidated Audit Trail, LLC paid these costs via loan 
contributions by the Participants to CAT NMS, LLC and Consolidated 
Audit Trail, LLC, respectively.
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    AWS was engaged by FCAT to provide a broad array of cloud hosting 
services for the CAT, including data ingestion, data management, and 
analytic tools. Services provided by AWS include storage services, 
databases, compute services and other services (such as networking, 
management tools and DevOps tools). AWS also was engaged to provide 
various environments for CAT, such as development, performance testing, 
test and production environments.
    The cost for AWS services for the CAT is a function of the volume 
of CAT Data. The greater the amount of CAT Data, the greater the cost 
of AWS services to the CAT. During the Pre-FAM Period from the 
engagement of AWS in February 2019 through June 2020, AWS provided 
cloud hosting services for volumes of CAT Data far in excess of the 
volume predictions set forth in the CAT NMS Plan. The CAT NMS Plan 
states, when all CAT Reporters are submitting their data to the CAT, it 
``must be sized to receive[,] process and load more than 58 billion 
records per day,'' \32\ and that ``[i]t is expected that the Central 
Repository will grow to more than 29 petabytes of raw, uncompressed 
data.'' \33\ However, the volume of CAT Data for the Pre-FAM Period was 
far in excess of these predicted levels. By the end of this period, 
data submitted to the CAT included options and equities Participant 
Data,\34\ Phase 2a and Phase 2b Industry Member Data \35\ (including 
certain linkages), as well as SIP Data,\36\ reference data and other 
types of Other Data.\37\ The following chart provides data regarding 
the average daily volume, cumulative total events, total compute hours 
and storage footprint of the CAT during the Pre-FAM Period.\38\
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    \32\ CAT NMS Plan, Appendix D-4 n.262.
    \33\ CAT NMS Plan, Appendix D-5.
    \34\ See Section 6.3(d) of the CAT NMS Plan.
    \35\ See Securities Exchange Release No. 88702 (April 20, 2020), 
85 FR 23075 (April 24, 2020) (``Phased Reporting Exemptive Relief 
Order'') for a description of Phase 2a and Phase 2b Industry Member 
Data.
    \36\ See Section 6.5(a)(ii) of the CAT NMS Plan.
    \37\ See CAT NMS Plan, Appendix C-108.
    \38\ Note that the volume data described in this table does not 
include CAIS data.

----------------------------------------------------------------------------------------------------------------
                                                                 Date Range: 3/29/19 to   Date Range: 4/13/20 to
                                                                       4/12/20 *                6/21/20 **
----------------------------------------------------------------------------------------------------------------
Average Daily Volume in Billions
    Participant--Equities.....................................                        5                        5
    Participant--Options......................................                       80                      981
    Industry Member--Equities.................................  .......................                        3
    Industry Member--Options..................................  .......................                     0.04
    SIP--Options & Equities...................................                       64                       70
    Average Total Daily Volume................................                      149                      166
Cumulative Total Events for the Period........................                    3,890                    4,990
Total Compute Hours for the Period............................                  *** N/A                5,663,247
Storage Footprint at End of Period (Petabytes)................                    30.57                    47.96
----------------------------------------------------------------------------------------------------------------
* The Participant Equities in RSA format.
** Start of Industry Member reporting on 4/13/2020
*** Although there were compute hours during this period, data related to such compute hours are no longer
  available in current data.

(b) Technology Costs--Operating Fees
    The $21,085,485 in technology costs related to operating fees 
represent costs incurred with regard to activities of FCAT as the Plan 
Processor. Operating fees are those fees paid by CAT LLC to FCAT as the 
Plan Processor to operate and maintain the CAT and to perform business 
operations related to the system, including compliance, security, 
testing, training, communications with the industry (e.g., management 
of the FINRA CAT Helpdesk, FAQs, website and webinars) and program 
management as required by the CAT NMS Plan.
    FCAT was selected to assume the role of the successor Plan 
Processor. Prior to this selection, the Participants engaged

[[Page 76630]]

in discussions with two prior Bidders \39\ for the successor Plan 
Processor role. The Operating Committee formed a Selection Subcommittee 
in accordance with Section 4.12 of the CAT NMS Plan to evaluate and 
review Bids and to make a recommendation to the Operating Committee 
with respect to the selection of the successor Plan Processor. In an 
April 9, 2019 letter to the Commission, the Participants described the 
reasons for its selection of the successor Plan Processor:
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    \39\ The term ``Bidder'' is defined in Section 1.1 of the CAT 
NMS Plan.

    The Selection Subcommittee considered factors including, but not 
limited to, the following, in recommending FINRA to the Operating 
Committee as the successor Plan Processor:
    a. FINRA's specialized technical expertise and capabilities in 
the area of broker-dealer technology;
    b. The need to appoint a successor Plan Processor with 
specialized expertise to develop, implement, and maintain the CAT 
System in accordance with the CAT NMS Plan and SEC Rule 613;
    c. FINRA's detailed proposal in response to CAT LLC's recent 
inquiries; and
    d. FINRA's data query and analytics systems demonstration to the 
Participants.
    Based on these and other factors, the Selection Subcommittee 
determined that FINRA was the most appropriate Bidder to become the 
successor Plan Processor.\40\
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    \40\ See Letter from Michael J. Simon, Chair, CAT NMS, LLC 
Operating Committee, to Brent J. Fields, Secretary, SEC, dated April 
9, 2019, https://www.sec.gov/divisions/marketreg/rule613-info-
notice-of-plan-processor-selection-040919.pdf.

    On February 26, 2019, the Operating Committee (with FINRA recusing 
itself) voted to select FINRA as the successor Plan Processor pursuant 
to Section 6.1(t) of the CAT NMS Plan.\41\ On March 29, 2019, CAT LLC 
and FCAT (a wholly owned subsidiary of FINRA) entered into a Plan 
Processor Agreement pursuant to which FCAT would perform the functions 
and duties of the Plan Processor contemplated by the CAT NMS Plan, 
including the management and operation of the CAT.
---------------------------------------------------------------------------

    \41\ See supra note 40.
---------------------------------------------------------------------------

    Under the Plan Processor Agreement with FCAT, CAT LLC is required 
to pay FCAT a negotiated monthly fixed price for the operation of the 
CAT. This fixed price contract was negotiated on an arm's length basis 
with the goals of managing costs and receiving services required to 
comply with the CAT NMS Plan and Rule 613, taking into consideration a 
variety of factors, including the breadth of services provided and 
market rates for similar types of activity. The operating fees during 
the Pre-FAM Period were paid to FCAT by CAT LLC.
    From March 29, 2019 (the commencement of the Plan Processor 
Agreement with FCAT) through June 22, 2020 (the end of the Pre-FAM 
Period), the Plan Processor's activities with respect to the CAT 
included the following:
    <bullet> Commenced user acceptance testing with market data 
provided by Exegy Incorporated (``Exegy''), a market data provider; 
\42\
---------------------------------------------------------------------------

    \42\ The use of Exegy to provide market data, including the 
costs and market data provided, is discussed below in Item 
II.A.1.(2)(B)(i)(i).
---------------------------------------------------------------------------

    <bullet> Published Technical Specifications and related reporting 
scenarios documents for Phase 2a, 2b, and 2c reporting for Industry 
Members, after substantial engagement with SEC staff, Industry Members 
and Participants on the Technical Specifications;
    <bullet> Facilitated testing for Phase 2a and 2b reporting for 
Industry Members;
    <bullet> Began developing Technical Specifications and related 
reporting scenarios documents for Phase 2d reporting for Industry 
Members, after substantial engagement with SEC staff, Industry Members 
and Participants on the Technical Specifications;
    <bullet> Published Central Repository Access Technical 
Specifications, and provided regulator access to test data from 
Industry Members;
    <bullet> Facilitated Participant exchanges that support options 
market makers sending Quote Sent Time to the CAT;
    <bullet> Facilitated the introduction of OPRA and Options NBBO 
Other Data to CAT;
    <bullet> Addressed compliance items, including drafting CAT 
policies and procedures, and addressing requirements under Regulation 
SCI;
    <bullet> Provided support to the Operating Committee, the 
Compliance Subcommittee and CAT working groups;
    <bullet> Assisted with interpretive efforts and exemptive requests 
regarding the CAT NMS Plan;
    <bullet> Oversaw the security of the CAT;
    <bullet> Monitored the operation of the CAT, including with regard 
to Participant and Industry Member reporting;
    <bullet> Provided support to subcontractors under the Plan 
Processor Agreement;
    <bullet> Provided support in discussions with, Participants, SEC 
and its staff;
    <bullet> Operated the FINRA CAT Helpdesk, which is the primary 
source for answers to questions about CAT, including questions 
regarding: clock synchronization, firm reporting responsibilities, 
interpretive questions, technical specifications for reporting to CAT 
and more;
    <bullet> Facilitated communications with the industry, including 
via FAQs, CAT Alerts, meetings, presentations and webinars;
    <bullet> Administered the CAT website and all of its content; \43\ 
and
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    \43\ The CAT website is https://www.catnmsplan.com.
---------------------------------------------------------------------------

    <bullet> Provided technical support and assistance with 
connectivity, data access, and user support, including the use of CAT 
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
    The $2,072,908 in technology costs related to CAIS operating fees 
represent the fees paid for FCAT's subcontractor charged with the 
development and operation of CAT's Customer and Account Information 
System (``CAIS''). The CAT is required under the CAT NMS Plan to 
capture and store Customer Identifying Information and Customer Account 
Information in a database separate from the transactional database and 
to create a CAT-Customer-ID for each Customer.
    During the Pre-FAM Period, the CAIS-related services were provided 
by the Plan Processor through the Plan Processor's subcontractor, 
Kingland Systems Incorporation (``Kingland''). Kingland had experience 
operating in the securities regulatory technology space, and as a part 
of its proposal for acting as the Plan Processor for the CAT, FCAT 
selected Kingland as a subcontractor to provide certain CAIS-related 
services.
    Under the Plan Processor Agreement with FCAT, CAT LLC is required 
to pay to the Plan Processor the fees incurred by FCAT for CAIS-related 
services provided by FCAT through Kingland on a monthly basis. FCAT 
negotiated the fees for Kingland's CAIS-related services on an arm's 
length basis with the goals of managing costs and receiving services 
required to comply with the CAT NMS Plan, taking into consideration a 
variety of factors, including the services to be provided and market 
rates for similar types of activity. The fees for CAIS-related services 
during the Pre-FAM Period were paid by CAT LLC to FCAT. FCAT, in turn, 
paid Kingland.
    During the Pre-FAM Period, Kingland began development of the CAIS 
Technical Specifications and the building of CAIS. In addition, 
Kingland also worked on the build related to the CCID Alternative, an 
alternative approach to customer information that was not included in 
the CAT NMS Plan

[[Page 76631]]

as originally adopted.\44\ Furthermore, Kingland also worked on the 
acceleration of the reporting of large trader identifiers (``LTID'') 
earlier than originally contemplated during this period, in accordance 
with exemptive relief granted by the SEC.\45\
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    \44\ For a discussion of the CCID Alternative, see Securities 
Exchange Act Release No. 88393 (March 17, 2020), 85 FR 16152 (March 
20, 2020).
    \45\ See Phased Reporting Exemptive Relief Order, 85 FR 23075, 
23079-80.
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(d) Technology Costs--Change Request Fees
    The technology costs related to change request fees include costs 
related to certain modifications, upgrades or other changes to the CAT. 
Change requests are standard practice and necessary to reflect 
operational changes, including changes related to new market 
developments, such as new market participants. In general, if CAT LLC 
determines that a modification, upgrade or other change to the 
functionality or service is necessary and appropriate, CAT LLC will 
submit a request for such a change to the Plan Processor. The Plan 
Processor will then respond to the request with a proposal for 
implementing the change, including the cost (if any) of such a change. 
CAT LLC then determines whether to approve the proposed change. The 
change request costs were paid by CAT LLC to FCAT. During the Pre-FAM 
Period, CAT LLC incurred costs of $141,346 related to change requests 
implemented by FCAT. Such change requests related to a development fee 
regarding the OPRA and SIP data feeds, and the reprocessing of certain 
exchange data.\46\
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    \46\ Note that CAT LLC also has incurred costs related to 
specific Industry Members (e.g., reprocessing costs related to 
Industry Member reporting errors).
---------------------------------------------------------------------------

(e) Technology Costs--Capitalized Developed Technology Costs
    This category of costs includes capitalizable application 
development costs incurred in the development of the CAT. The 
capitalized developed technology costs for the Pre-FAM Period of 
$51,847,150 relate to technology provided by the Initial Plan Processor 
and the successor Plan Processor.
    Initial Plan Processor: Thesys CAT, LLC. The capitalized developed 
technology costs related to the Initial Plan Processor include costs 
incurred with regard to testing for Participant reporting, Participant 
reporting to the CAT, a security assessment of the CAT, and the 
development of the billing function for the CAT.
    On, January 17, 2017, the Selection Committee of the CAT NMS Plan 
selected the Initial Plan Processor, Thesys Technologies, LLC, for the 
CAT NMS Plan pursuant to Article V of the CAT NMS Plan.\47\ The 
Participants utilized a request for proposal (``RFP'') to seek 
proposals to build and operate the CAT, receiving a number of proposals 
in response to the RFP. The Participants carefully reviewed and 
considered each of the proposals, including holding in-person meetings 
with each of the Bidders. After several rounds of review, the 
Participants selected the Initial Plan Processor in accordance with the 
CAT NMS Plan, taking into consideration that the Initial Plan Processor 
had experience operating in the securities regulatory technology space, 
among other considerations. On April 6, 2017, CAT LLC entered into an 
agreement with Thesys CAT LLC (``Thesys CAT''), a Thesys affiliate, to 
perform the functions and duties of the Plan Processor contemplated by 
the CAT NMS Plan, including the management and operation of the CAT. 
Under the agreement, CAT LLC would pay Thesys CAT a negotiated, fixed 
price fee for its role as the Initial Plan Processor. Effective January 
30, 2019, the Plan Processor Agreement with Thesys CAT was terminated, 
and FCAT was subsequently selected as the successor Plan Processor.
---------------------------------------------------------------------------

    \47\ See Letter from the Participants to Brent J. Fields, 
Secretary, SEC, dated January 18, 2017, https://www.sec.gov/divisions/marketreg/rule613-info-notice-of-plan-processor-
selection.pdf.
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    From January 17, 2017 through January 30, 2019, the time in which 
the Thesys CAT was engaged for the CAT, but excluding the period from 
November 15, 2017 through January 30, 2019, the Initial Plan Processor 
engaged in various activities with respect to the CAT, including 
preparing iterative drafts of Participant Technical Specifications, 
Industry Member Technical Specifications and the Central Repository 
Access Technical Specifications. In addition, Thesys CAT also developed 
CAT technology, addressed compliance items, including drafting CAT 
policies and procedures, addressing Regulation SCI requirements, 
establishing a CAT Compliance Officer and a Chief Information Security 
Officer, addressed security-related matters for the CAT, and worked 
towards the initiation of Participant reporting per the Participant 
Technical Specifications.
    Successor Plan Processor: FCAT. The capitalized developed 
technology costs related to FCAT include: (1) development costs 
incurred during the application development stage to meet various 
agreed-upon milestones regarding the CAT, including the completion of 
go-live functionality related to options ingestion and validation, 
equities regulatory services agreement query tool updates and unlinked 
options data query, options linkages release, Industry Member Phase 2a 
file submission and data integrity (including error corrections), and 
Industry Member testing, including reporting relationships, ATS order 
type management, basic reporting statistics, SFTP data integrity 
feedback and error correction; (2) costs related to certain 
modifications, upgrades, or other changes to the CAT that were not 
contemplated by the agreement between CAT LLC and the Plan Processor, 
including a one-time development fee for a secure analytics workspace, 
a one-time development fee of an Industry Member connectivity solution; 
and a one-time development fee for the acceleration of multi-factor 
authentication; (3) CAIS implementation fees; and (4) license fees.
(f) Legal Costs
    The legal costs of $19,674,463 represent the fees paid for legal 
services provided by two law firms, Wilmer Cutler Pickering Hale and 
Dorr LLP (``WilmerHale'') and Pillsbury Winthrop Shaw Pittman LLP 
(``Pillsbury''), during the Pre-FAM Period. The legal costs exclude 
those costs incurred from November 15, 2017 through November 15, 2018.
    Law Firm: WilmerHale. Following the adoption of Rule 613, the 
Participants determined it was necessary to engage external legal 
counsel to advise the Participants with respect to corporate and 
regulatory legal matters related to the CAT, including drafting and 
developing the CAT NMS Plan. The Participants considered a variety of 
factors in their analysis of prospective law firms, including (1) the 
firm's qualifications, resources, and expertise, (2) the firm's 
relevant experience and understanding of the regulatory matters raised 
by the CAT and in advising on matters of similar scope, (3) the 
composition of the legal team, and (4) professional fees. Following a 
series of interviews, the Participants acting as a consortium 
determined that WilmerHale was well qualified given the balance of 
these considerations and engaged WilmerHale in February 2013.
    WilmerHale's billing rates are negotiated on an annual basis and 
are determined with reference to the rates charged by other leading law 
firms for similar work. The Participants assess WilmerHale's 
performance and review prospective budgets and staffing plans

[[Page 76632]]

submitted by WilmerHale on an annual basis. WilmerHale's compensation 
arrangements are reasonable and appropriate, and in line with the rates 
charged by other leading law firms for similar work.
    The legal costs for WilmerHale during the Pre-FAM Period included 
costs incurred from 2013 until June 22, 2020 to address corporate and 
regulatory legal matters related to the CAT. The legal fees for this 
law firm during the period from February 2013 until the formation of 
the CAT NMS, LLC on November 15, 2016 were paid directly by the 
exchanges and FINRA to WilmerHale. After the formation of CAT NMS LLC, 
the legal fees were paid by CAT LLC to WilmerHale.
    After WilmerHale was engaged in 2013 through the end of the Pre-FAM 
Period on June 22, 2020 (excluding the legal costs from November 15, 
2017 through November 15, 2018), WilmerHale provided legal assistance 
to the CAT on a variety of matters, including with regard to the 
following:
    <bullet> Analyzed various legal matters associated with the 
Selection Plan, and drafted an amendment to the Selection Plan;
    <bullet> Assisted with the RFP and bidding process for the CAT Plan 
Processor;
    <bullet> Analyzed legal matters related to the Development Advisory 
Group (``DAG'');
    <bullet> Drafted the CAT NMS Plan, analyzed various items related 
to the CAT NMS Plan, and responded to comment letters on CAT NMS Plan;
    <bullet> Provided legal support for the formation of the legal 
entity, the governance of the CAT, including governance support prior 
to the adoption of the CAT NMS Plan, which involved support for the 
full committee of exchanges and FINRA as well as subcommittees of this 
group (e.g., Joint Subcommittee Group, Technical, Industry Outreach, 
Cost and Funding and Other Products) and the DAG, governance support 
during the transition to the new governance structure under the CAT NMS 
Plan; and governance support after the adoption of the CAT NMS Plan, 
which involved support for the Operating Committee, Advisory Committee, 
Compliance Subcommittee, and CAT working groups;
    <bullet> Assisted with the development of the CAT funding model and 
drafted related amendments of the CAT NMS Plan and related filings;
    <bullet> Negotiated and drafted the plan processor agreements with 
the Initial Plan Processor and the successor Plan Processor;
    <bullet> Provided assistance with compliance with Regulation SCI;
    <bullet> Assisted with clock synchronization study;
    <bullet> Provided assistance with respect to the establishment of 
CAT security;
    <bullet> Drafted exemptive requests from CAT NMS Plan requirements, 
including with regard to options market maker quotes, Customer IDs, CAT 
Reporter IDs, linking allocations to executions, CAT reporting 
timeline, FDIDs, customer and account information, timestamp 
granularity, small industry members, data facility reporting and 
linkage, allocation reports, SRO-assigned market participant 
identifiers and cancelled trade indicators, thereby seeking to 
implement changes that would be cost effective and benefit of Industry 
Members and Participants;
    <bullet> Assisted with the Implementation Plan required pursuant to 
Section 6.6(c)(i) of the CAT NMS Plan;
    <bullet> Provided advice regarding CAT policies and procedures;
    <bullet> Analyzed the SEC's amendment of the CAT NMS Plan regarding 
financial accountability;
    <bullet> Provided interpretations of and related to the CAT NMS 
Plan;
    <bullet> Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretive and 
implementation issues; and
    <bullet> Assisted with third-party vendor agreements.
    Law Firm: Pillsbury. The legal costs for CAT during the Pre-FAM 
Period include costs related to the legal services performed by 
Pillsbury. The Participants interviewed this law firm as well as other 
potential law firms to provide legal assistance regarding certain 
liability matters. After considering a variety of factors in its 
analysis, including the relevant expertise and fees of the firm, CAT 
LLC determined to hire Pillsbury in April 2019. The hourly fee rates 
for this law firm were in line with market rates for specialized legal 
expertise. The legal fees were paid by CAT LLC to Pillsbury. The legal 
costs for Pillsbury during the Pre-FAM Period included costs incurred 
from April 2019 until June 22, 2020 to address legal matters regarding 
the agreements between CAT Reporters and CAT LLC concerning certain 
terms associated with CAT Reporting (the ``Reporter Agreement''). 
During that period, Pillsbury advised CAT LLC regarding applicable 
legal matters, participated in negotiations between the Participants 
and Industry Members, participated in meetings with senior SEC staff, 
the Chairman, and Commissioners, represented CAT LLC and the 
Participants in an SEC administrative proceeding, and drafted a 
proposed amendment to the CAT NMS Plan regarding liability matters. 
Liability issues related to the CAT are important matters that needed 
to be resolved and clarified. CAT LLC's efforts to seek such resolution 
and clarity work to the benefit of Participants, Industry Members and 
other market participants. Moreover, litigation involving CAT LLC is an 
expense of operating the CAT, and, therefore, is appropriately an 
obligation of both Participants and Industry Members under the CAT 
Funding Model.
(g) Consulting Costs
    The consulting costs of $17,013,414 represent the fees paid to the 
consulting firm Deloitte & Touche LLP (``Deloitte'') as project manager 
during the Pre-FAM Period, from October 2012 until June 22, 2020. These 
consulting costs include costs for advisory services related to the 
operation of the CAT, and meeting facilitation and communications 
coordination, vendor support and financial analyses.
    To help facilitate project management given the unprecedented 
complexity and scope of the CAT project, the Participants determined it 
was necessary to engage a consulting firm to assist with the CAT 
project in 2012, following the adoption of Rule 613. A variety of 
factors were considered in the analysis of prospective consulting 
firms, including (1) the firm's qualifications, resources, and 
expertise, (2) the firm's relevant experience and understanding of the 
regulatory issues raised by the CAT and in coordinating matters of 
similar scope, (3) the composition of the consulting team, and (4) 
professional fees. Following a series of interviews, the exchanges and 
FINRA as a consortium determined that Deloitte was well qualified given 
the balance of these considerations and engaged Deloitte on October 1, 
2012.
    Deloitte's fee rates are negotiated on an annual basis and are in 
line with market rates for this type of specialized consulting work. 
CAT LLC assesses Deloitte's performance and reviews prospective budgets 
and staffing plans submitted by Deloitte on an annual basis. Deloitte's 
compensation arrangements are reasonable and appropriate, and in line 
with the rates charged by other leading consulting firms for similar 
work.
    The consulting costs for CAT during the period from 2012 until the 
formation of the CAT NMS, LLC were paid directly by the Participants to 
Deloitte. After the formation of CAT NMS, LLC, the consulting fees were 
paid by CAT

[[Page 76633]]

LLC to Deloitte. CAT LLC reviewed the consulting fees each month and 
approved the invoices.
    After Deloitte was hired in 2012 through the end of the Pre-FAM 
Period on June 22, 2020 (excluding the consulting costs from November 
15, 2017 through November 15, 2018), Deloitte provided a variety of 
consulting services, including the following:
    <bullet> Established and implemented program operations for the CAT 
project, including the program management [sic] office and workstream 
design;
    <bullet> Assisted with the Plan Processor selection process, 
including but not limited to, the development of the RFP and the bidder 
evaluation process, and facilitation and consolidation of the 
Participant's independent reviews;
    <bullet> Assisted with the development and drafting of the CAT NMS 
Plan, including conducting cost-benefit studies, analyzing the Order 
Audit Trail System (``OATS'') and CAT requirements, and drafting 
appendices to the Plan;
    <bullet> Assisted with cost and funding-related activities for the 
CAT, including the development of the CAT funding model and assistance 
with loans and the CAT bank account for CAT funding;
    <bullet> Provided governance support to the CAT, including 
governance support prior to the adoption of the CAT NMS Plan, which 
involved support for the full committee of exchanges and FINRA as well 
as subcommittees of this group (e.g., Joint Subcommittee Group, 
Technical, Industry Outreach, Cost and Funding and Other Products) and 
the DAG, governance support during the transition to the new governance 
structure under the CAT NMS Plan and governance support after the 
adoption of the CAT NMS Plan, which involved support for the Operating 
Committee, Advisory Committee, Compliance Subcommittee and CAT working 
groups;
    <bullet> Provided support to the Operating Committee, the Chair of 
the Operating Committee and the Leadership Team, including project 
management support, coordination and planning for meetings and 
communications, and interfacing with law firms and the SEC;
    <bullet> Assisted with industry outreach and communications 
regarding the CAT, including assistance with industry outreach events, 
the development of the CAT website, frequently asked questions, and 
coordinating with the CAT LLC's public relations firm;
    <bullet> Provided support for updating the SEC on the progress of 
the development of the CAT;
    <bullet> Provided active planning and coordination with and support 
for the Initial Plan Processor with regard to the development of the 
CAT, and reported to the Participants on the progress;
    <bullet> Coordinated efforts regarding the selection of the 
successor Plan Processor;
    <bullet> Assisted with the transition from the Initial Plan 
Processor to the successor Plan Processor, including support for the 
Operating Committee and successor Plan Processor for the new role; and
    <bullet> Provided support for third-party vendors for the CAT, 
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
    The insurance costs of $880,419 represent the cost incurred for 
insurance for CAT during the Pre-FAM Period. Commencing in 2020, CAT 
LLC performed an evaluation of various potential alternatives for CAT 
insurance policies, which included engaging in discussions with 
different insurance companies and conducting cost comparisons of 
various alternative approaches to insurance. Based on an analysis of a 
variety of factors, including coverage and premiums, CAT LLC determined 
to purchase cyber security liability insurance, directors' and 
officers' liability insurance, and errors and omissions liability 
insurance from USI Insurance Services LLC (``USI''). Such policies are 
standard for corporate entities, and cyber security liability insurance 
is important for the CAT System. The annual premiums for these policies 
were competitive for the coverage provided. The annual premiums were 
paid by CAT LLC to USI.
(i) Professional and Administration Costs
    In adopting the CAT NMS Plan, the Commission amended the Plan to 
add a requirement that CAT LLC's financial statements be prepared in 
compliance with GAAP, audited by an independent public accounting firm, 
and made publicly available.\48\ The professional and administration 
costs include costs related to accounting and accounting advisory 
services to support the operating and financial functions of CAT, 
financial statement audit services by an independent accounting firm, 
preparation of tax returns, and various cash management and treasury 
functions. In addition, professional and administration costs for the 
Pre-FAM Period include costs related to the receipt of market data and 
a security assessment. The costs for these professional and 
administration services were $1,082,036 for the Pre-FAM Period.
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    \48\ Section 9.2 of the CAT NMS Plan.
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    Financial Advisory Firm: Anchin Accountants & Advisors 
(``Anchin''). CAT LLC determined to hire a financial advisory firm, 
Anchin, to assist with financial matters for the CAT in April 2018. CAT 
LLC interviewed Anchin as well as other potential financial advisory 
firms to assist with the CAT project, considering a variety of factors 
in its analysis, including the firm's relevant expertise and fees. The 
hourly fee rates for this firm were in line with market rates for these 
financial advisory services. The fees for these services were paid by 
CAT LLC to Anchin.
    After Anchin was hired in April 2018 through the end of the Pre-FAM 
Period on June 22, 2020 (excluding the period from April 2018 through 
November 15, 2018), Anchin provided a variety of services, including 
the following:
    <bullet> Developed, updated and maintained internal controls;
    <bullet> Provided cash management and treasury functions;
    <bullet> Facilitated bill payments;
    <bullet> Provided monthly bookkeeping;
    <bullet> Reviewed vendor invoices and documentation in support of 
cash disbursements;
    <bullet> Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
    <bullet> Addressed not-for-profit tax and accounting 
considerations;
    <bullet> Prepared tax returns;
    <bullet> Addressed various accounting, financial and operating 
inquiries from Participants;
    <bullet> Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
    <bullet> Addressed accounting and financial reporting matters 
relating to the transition from CAT NMS, LLC to Consolidated Audit 
Trail, LLC, including supporting the dissolution of CAT NMS, LLC;
    <bullet> Supported compliance with the CAT NMS Plan;
    <bullet> Worked with and provided support to the Operating 
Committee and various CAT working groups;
    <bullet> Prepared monthly, quarterly and annual financial 
statements;
    <bullet> Supported the annual financial statement audits by an 
independent auditor;
    <bullet> Reviewed historical costs from inception; and
    <bullet> Provided accounting and financial information in support 
of SEC filings.
    Accounting Firm: Grant Thornton LLP (``Grant Thornton''). In 
February 2020, CAT LLC determined to engage an

[[Page 76634]]

independent accounting firm, Grant Thornton, to complete the audit of 
CAT LLC's financial statements, in accordance with the requirements of 
the CAT NMS Plan. CAT LLC interviewed this firm as well as another 
potential accounting firm to audit CAT LLC's financial statements, 
considering a variety of factors in its analysis, including the 
relevant expertise and fees of each of the firms. CAT LLC determined 
that Grant Thornton was well-qualified for the proposed role given the 
balance of these considerations. Grant Thornton's fixed fee rate 
compensation arrangement was reasonable and appropriate, and in line 
with the market rates charged for these types of accounting services. 
The fees for these services were paid by CAT LLC to Grant Thornton.
    Market Data Provider: Exegy. The professional and administrative 
costs for the Pre-FAM Period included costs related to the receipt of 
certain market data for the CAT pursuant to an agreement with the CAT 
LLC, and then with FCAT. Exegy provided SIP Data required by the CAT 
NMS Plan.
    After performing an analysis of the available market data vendors 
to confirm that the data provided met the SIP Data requirements of the 
CAT NMS Plan and comparing the costs of the vendors providing the 
required SIP Data, CAT LLC determined to purchase market data from 
Exegy from July 2018 through March 2019. CAT LLC determined that, 
unlike certain other vendors, Exegy provided market data that included 
all data elements required by the CAT NMS Plan.\49\ In addition, the 
fees were reasonable and in line with market rates for the market data 
received. Accordingly, the professional and administrative costs for 
the Pre-FAM Period include the Exegy costs from November 2018 through 
March 2019. The cost of the market data was reasonable for the market 
data received. The fees for the market data were paid directly by CAT 
LLC to Exegy.
---------------------------------------------------------------------------

    \49\ See Section 6.5(a)(ii) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Upon the termination of the contract between CAT LLC and Exegy, 
FCAT entered into a contract with Exegy to purchase the required market 
data from Exegy in July 2019. All costs under the contract were treated 
as a direct pass through cost to CAT LLC. Therefore, the fees for the 
market data were paid by CAT LLC to FCAT, who, in turn, paid Exegy for 
the market data.
    Security Assessment: RSM US LLP (``RSM''). The operating costs for 
the Pre-FAM Period include costs related to a third-party security 
assessment of the CAT performed by RSM. The assessment was designed to 
verify and validate the effective design, implementation, and operation 
of the controls specified by NIST Special Publication 800-53, Revision 
4 and related standards and guidelines. Such a security assessment is 
in line with industry practice and important given the data included in 
the CAT. CAT LLC determined to engage RSM to perform the security 
assessment, after considering a variety of factors in its analysis, 
including the firm's relevant expertise and fees. The fees were 
reasonable and in line with market rates for such an assessment. RSM 
performed the assessment from October 2018 through December 2018. 
Accordingly, the costs for the Pre-FAM Period include the costs 
incurred in November and December 2018. The cost for the security 
assessment were paid directly to RSM by CAT LLC.
(j) Public Relations Costs
    The public relations costs of $224,669 represent the fees paid to 
public relations firms during the Pre-FAM Period for professional 
communications services to CAT, including media relations consulting, 
strategy and execution. By engaging a public relations firm, CAT LLC 
was better positioned to understand and address CAT matters to the 
benefit of all market participants. Specifically, the public relations 
firms provided services related to communications with the public 
regarding the CAT, including monitoring developments related to the CAT 
(e.g., congressional efforts, public comments and reaction to 
proposals, press coverage of the CAT), reporting such developments to 
CAT LLC, and drafting and disseminating communications to the public 
regarding such developments as well as reporting on developments 
related to the CAT (e.g., amendments to the CAT NMS Plan). Public 
relations services were important for various reasons, including 
monitoring comments made by market participants about CAT and 
understanding issues related to the CAT discussed on the public record.
    The services performed by each of the public relations firms were 
comparable. The fees for such services were reasonable and in line with 
market rates. Only one public relations firm was engaged at a time; the 
three firms were engaged sequentially as the primary public relations 
contact moved among the three firms during this time period.
    Public Relations Firm: Peppercomm, Inc. (``Peppercomm''). The 
national securities exchanges and FINRA, acting as a consortium, 
determined to hire the public relations firm Peppercomm in October 2014 
and continued to engage this firm through September 2017. The exchanges 
and FINRA made this engagement decision after considering a variety of 
factors in its analysis, including the firm's relevant expertise and 
fees. The fee rates for this public relations firm were negotiated on 
an arm's length basis and were in line with market rates for these 
types of services. The public relations costs during the period from 
October 2014 until the formation of the CAT NMS LLC were paid directly 
by the exchanges and FINRA to the public relations firm. After the 
formation of CAT NMS, LLC, the consulting fees were paid by CAT LLC.
    Public Relations Firm: Sloane & Company (``Sloane''). CAT LLC 
determined to hire a new public relations firm, Sloane, in March 2018, 
based on, among other things, their expertise and the primary contact's 
history with the project. The fee rates for this public relations firm 
were in line with market rates for these types of services. The fees 
during the Pre-FAM Period were paid by CAT LLC to Sloane. CAT LLC 
continued the engagement with Sloane until February 2020.
    Public Relations Firm: Peak Strategies. CAT LLC determined to hire 
a new public relations firm, Peak Strategies, in March 2020, based on, 
among other things, their expertise and the primary contact's history 
with the project. The fee rates for this public relations firm were in 
line with market rates for these types of services. The fees during the 
Pre-FAM Period were paid by CAT LLC to Peak Strategies.
(ii) Historical CAT Costs Incurred in Financial Accountability 
Milestone Period 1
    Historical CAT Costs 1 would include costs incurred by CAT and 
already funded by the Participants during Period 1 of the Financial 
Accountability Milestones (``FAM Period 1''),\50\ which covers the 
period from June 22, 2020--July 31, 2020. Historical CAT Costs 1 would 
include costs for FAM Period 1 of $6,377,343. The Participants would 
remain responsible for one-third of this cost (which they have 
previously paid) ($2,125,781), and Industry Members would be 
responsible for the remaining two-thirds, with CEBBs paying one-third 
($2,125,781) and CEBSs paying one-third ($2,125,781). The following 
table breaks down Historical CAT Costs 1 for FAM Period 1 into the 
categories

[[Page 76635]]

set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.\51\
---------------------------------------------------------------------------

    \50\ Section 11.6(a)(i)(A) of the CAT NMS Plan.
    \51\ The costs described in this table of costs for FAM Period 1 
were calculated based upon CAT LLC's review of applicable bills and 
invoices and related financial statements. CAT LLC financial 
statements are available on the CAT website.

------------------------------------------------------------------------
                                                   Historical CAT costs
               Operating expense                     for FAM Period 1
------------------------------------------------------------------------
Capitalized Developed Technology Costs *.......               $1,684,870
Technology Costs...............................                3,996,800
    Cloud Hosting Services.....................                2,642,122
    Operating Fees.............................                1,099,680
    CAIS Operating Fees........................                  254,998
    Change Request Fees........................  .......................
Legal..........................................                  481,687
Consulting.....................................                  137,209
Insurance......................................  .......................
Professional and administration................                   69,077
Public relations...............................                    7,700
                                                ------------------------
    Total Operating Expenses...................                6,377,343
------------------------------------------------------------------------
* The non-cash amortization of these capitalized developed technology
  costs of $362,121 incurred during FAM Period 1 have been appropriately
  excluded from the above table.\52\

    By the completion of FAM Period 1, CAT LLC was required to 
implement the reporting by Industry Members (excluding Small Industry 
Members that are not OATS reporters) of equities transaction data and 
options transaction data, excluding Customer Account Information, 
Customer-ID and Customer Identifying Information.\53\ CAT LLC completed 
the requirements of FAM Period 1 by July 31, 2020. The following 
describes the costs for each of the categories for FAM Period 1.
---------------------------------------------------------------------------

    \52\ As discussed above, with respect to certain costs that were 
``appropriately excluded,'' such excluded costs relate to the 
amortization of capitalized technology costs, which are amortized 
over the life of the Plan Processor Agreement. As such costs have 
already been otherwise reflected in the filing, their inclusion 
would double count the capitalized technology costs. In addition, 
amortization is a non-cash expense.
    \53\ See definition of ``Initial Industry Member Core Equity and 
Options Reporting'' in Section 1.1 of the CAT NMS Plan.
---------------------------------------------------------------------------

(a) Technology Costs--Cloud Hosting Services
    CAT LLC continued to utilize AWS in FAM Period 1 to provide a broad 
array of cloud hosting services for the CAT, including data ingestion, 
data management, and analytic tools. AWS continued to provide storage 
services, databases, compute services and other services (such as 
networking, management tools and DevOps tools), as well as various 
environments for CAT, such as development, performance testing, test, 
and production environments, during the FAM 1 Period. Accordingly, the 
$2,642,122 in technology costs for cloud hosting services represent 
costs incurred for services provided by AWS, as the cloud services 
provider, during FAM Period 1. The fee arrangement for AWS described 
above with regard to the Pre-FAM Period continued in place during FAM 
Period 1 pursuant to the Plan Processor Agreement. Moreover, CAT LLC 
continued to believe that AWS's maturity in the cloud services space as 
well as the significant cost and time necessary to move the CAT to a 
different cloud services provider supported the continued engagement of 
AWS.
    The cost for AWS cloud services for the CAT continued to be a 
function of the volume of CAT Data. During the FAM 1 Period, the volume 
of CAT Data continued to far exceed the original predictions for the 
CAT as set forth in the CAT NMS Plan. During this period, data 
submitted to the CAT included options and equities Participant Data, 
Phase 2a and Phase 2b Industry Member Data (including certain linkages) 
as well as SIP Data, reference data and other types of Other Data. The 
following chart provides data regarding the average daily volume, 
cumulative total events, total compute hours and storage footprint of 
the CAT during FAM Period 1.\54\
---------------------------------------------------------------------------

    \54\ Note that the volume data described in this table does not 
include CAIS data.

------------------------------------------------------------------------
                                                  Date Range: 6/22/20-7/
                                                          31/20
------------------------------------------------------------------------
Average Daily Volume in Billions:
    Participant--Equities......................                        6
    Participant--Options.......................                      103
    Industry Member--Equities..................                        7
    Industry Member--Options...................                     0.31
    SIP--Options & Equities....................                       74
    Average Total Daily Volume.................                      185
Cumulative Total Events for the Period.........                    5,190
Total Compute Hours for the Period.............                2,612,082
Storage Footprint at End of Period (Petabytes).                    57.47
------------------------------------------------------------------------

(b) Technology Costs--Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, FCAT 
continued in its role as the Plan Processor for the CAT during FAM 
Period 1. Accordingly, the $1,099,680 in technology costs for operating 
fees represent costs incurred for the services provided by FCAT under 
the Plan Processor Agreement, during FAM Period 1. The fee arrangement 
for FCAT described above with regard to the Pre-

[[Page 76636]]

FAM Period continued in place during FAM Period 1 pursuant to the Plan 
Processor Agreement. During FAM Period 1, FCAT's activities with 
respect to the CAT included the following:
    <bullet> Published iterative drafts of Technical Specifications for 
Phase 2d, after substantial engagement with SEC staff, Industry Members 
and Participants on the Technical Specifications;
    <bullet> Published iterative drafts of CAIS Technical 
Specifications, after substantial engagement with SEC staff, Industry 
Members and Participants on the Technical Specifications;
    <bullet> Facilitated Industry Member reporting of Quote Sent Time 
on Options Market Maker quotes;
    <bullet> Addressed compliance items, including drafting CAT 
policies and procedures, and addressing Regulation SCI requirements;
    <bullet> Provided support to the Operating Committee, the 
Compliance Subcommittee and CAT working groups;
    <bullet> Assisted with interpretive efforts and exemptive requests 
regarding the CAT NMS Plan;
    <bullet> Oversaw the security of the CAT;
    <bullet> Monitored the operation of the CAT, including with regard 
to Participant and Industry Member reporting;
    <bullet> Provided support to subcontractors under the Plan 
Processor Agreement;
    <bullet> Provided support in discussions with Participants and the 
SEC and its staff;
    <bullet> Operated the FINRA CAT Helpdesk;
    <bullet> Facilitated communications with the industry, including 
via FAQs, CAT Alerts, meetings, presentations and webinars;
    <bullet> Administered the CAT website and all of its content; and
    <bullet> Provided technical support and assistance with 
connectivity, data access, and user support, including the use of CAT 
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, Kingland 
continued in its role as a subcontractor for the development and 
implementation of CAIS during FAM Period 1. Accordingly, the $254,998 
in technology costs for CAIS operating fees represent costs incurred 
for services provided by Kingland during FAM Period 1. The fee 
arrangement for Kingland described above with regard to the Pre-FAM 
Period continued in place during FAM Period 1 pursuant to the Plan 
Processor Agreement. During FAM Period 1, Kingland continued the 
development of the CAIS Technical Specifications and building of CAIS. 
In addition, Kingland continued to work on the CAIS Technical 
Specifications and build related to CCID Alternative, as well as the 
acceleration of the reporting of LTIDs.
(d) Technology Costs--Change Request Fees
    CAT LLC did not incur costs related to change requests during FAM 
Period 1.
(e) Technology Costs--Capitalized Developed Technology Costs
    Capitalized developed technology costs for FAM Period 1 of 
$1,684,870 include capitalizable application development costs incurred 
in the development of the CAT by FCAT. Such costs include: (1) costs 
related to certain modifications, upgrades, or other changes to the CAT 
that were not contemplated by the agreement between CAT LLC and the 
Plan Processor, including separate production and industry test 
entitlements, and reprocessing of exchange event timestamps; (2) 
implementation fees; and (3) license fees.
(f) Legal Costs
    The legal costs of $481,687 represent the fees paid for legal 
services provided by two law firms, WilmerHale and Pillsbury during FAM 
Period 1.
    Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during 
FAM Period 1 based on, among other things, their expertise and long 
history with the project. The hourly fee rates for this law firm were 
in line with market rates for specialized legal expertise. The legal 
fees during FAM Period 1 were paid by CAT LLC to WilmerHale. During FAM 
Period 1, WilmerHale provided legal assistance to the CAT including 
with regard to the following:
    <bullet> Assisted with the development of the CAT funding model and 
drafted related amendments and fee filings;
    <bullet> Drafted exemptive requests from CAT NMS Plan requirements 
regarding, for example, verbal activity, options market maker quote 
sent time, TRF linkages, and allocations;
    <bullet> Provided interpretations related to CAT NMS Plan 
requirements, including the Financial Accountability Milestone 
amendment;
    <bullet> Assisted with compliance with Regulation SCI;
    <bullet> Provided support for the Operating Committee, Compliance 
Subcommittee, working groups and Leadership Team, including with regard 
to meetings with the SEC staff;
    <bullet> Assisted with the drafting of the Implementation Plan 
required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
    <bullet> Assisted with communications and presentations for the 
industry regarding CAIS;
    <bullet> Drafted SRO rule filings related to the CAT Compliance 
Rule;
    <bullet> Provided support for Compliance Subcommittee, including 
with regard to response to OCIE examinations and the annual assessment;
    <bullet> Provided guidance regarding CAT technical specifications;
    <bullet> Assisted with third-party vendor agreements; and
    <bullet> Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretive and 
implementation issues.
    Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during 
FAM Period 1 based on, among other things, their expertise and history 
with the project. The hourly fee rates for this law firm were in line 
with market rates for specialized legal expertise. The legal fees 
during FAM Period 1 were paid by CAT LLC to Pillsbury. During FAM 
Period 1, Pillsbury provided legal assistance to the CAT regarding the 
CAT Reporter Agreement. During that period, Pillsbury advised CAT LLC 
regarding applicable legal matters and drafted a proposed amendment to 
the CAT NMS Plan regarding liability matters. Liability issues related 
to the CAT are important matters that needed to be resolved and 
clarified. CAT LLC's efforts to seek such resolution and clarity work 
to the benefit of Participants, Industry Members and other market 
participants.
(g) Consulting Costs
    The consulting costs of $137,209 represent the fees paid to 
Deloitte as project manager during FAM Period 1. CAT LLC continued to 
employ Deloitte during FAM Period 1 based on, among other things, their 
expertise and cumulative experience with the CAT. The fee rates for 
Deloitte during FAM Period 1 were negotiated and in line with market 
rates for this type of specialized consulting work. The consulting fees 
during FAM Period 1 were paid by CAT LLC to the consulting firm. CAT 
LLC reviewed the consulting fees each month and approved the invoices. 
During FAM Period 1, Deloitte's CAT-related activities included the 
following:
    <bullet> Implemented program operations for the CAT project;
    <bullet> Provided support to the Operating Committee, the Chair of 
the Operating Committee and the Leadership Team, including project 
management support,

[[Page 76637]]

coordination and planning for meetings and communications, and 
interfacing with law firms and the SEC;
    <bullet> Assisted with cost and funding matters for the CAT, 
including the development of the CAT funding model and assistance with 
loans and the CAT bank account for CAT funding;
    <bullet> Provided support for updating the SEC on the progress of 
the development of the CAT;
    <bullet> Assisted with the transition from the Initial Plan 
Processor to the successor Plan Processor; and
    <bullet> Provided support for third-party vendors for the CAT, 
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
    Although insurance was in effect during FAM Period 1, CAT LLC did 
not incur costs related to insurance during FAM Period 1.
(i) Professional and Administration Costs
    Financial Advisory Firm: Anchin. The professional and 
administration costs of $69,077 represent the fees paid to Anchin 
during FAM Period 1. CAT LLC continued to employ Anchin during FAM 
Period 1 based on, among other things, their expertise and history with 
the project. The hourly fee rates for this firm were in line with 
market rates for these type of financial advisory services. The fees 
for these services during FAM Period 1 were paid by CAT LLC to Anchin. 
During FAM Period 1, Anchin provided a variety of services, including 
the following:
    <bullet> Maintained internal controls;
    <bullet> Provided cash management and treasury functions;
    <bullet> Facilitated bill payments;
    <bullet> Provided monthly bookkeeping;
    <bullet> Reviewed vendor invoices and documentation in support of 
cash disbursements;
    <bullet> Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
    <bullet> Addressed various accounting, financial reporting and 
operating inquiries from Participants;
    <bullet> Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
    <bullet> Supported compliance with the CAT NMS Plan;
    <bullet> Worked with and provided support to the Operating 
Committee and various CAT working groups; and
    <bullet> Prepared monthly and quarterly financial statements.
(j) Public Relations Costs
    The public relations costs of $7,700 represent the fees paid to 
Peak Strategies during FAM Period 1. CAT LLC continued to employ Peak 
Strategies during FAM Period 1 based on, among other things, their 
expertise and history with the project. The fee rates for this firm 
were reasonable and in line with market rates for these types of 
services. The fees for these services during FAM Period 1 were paid by 
CAT LLC to Peak Strategies. During FAM Period 1, Peak Strategies 
continued to provide professional communications services to CAT LLC, 
including media relations consulting, strategy and execution. 
Specifically, the public relations firm provided services related to 
communications with the public regarding the CAT, including monitoring 
developments related to the CAT (e.g., congressional efforts, public 
comments and reaction to proposals, press coverage of the CAT), 
reporting such developments to CAT LLC, and drafting and disseminating 
communications to the public regarding such developments as well as 
reporting on developments related to the CAT (e.g., amendments to the 
CAT NMS Plan). As discussed above, such public relations services were 
important for various reasons, including monitoring comments made by 
market participants about the CAT and understanding issues related to 
the CAT discussed on the public record. By engaging a public relations 
firm, CAT LLC was better positioned to understand and address CAT 
matters to the benefit of all market participants.
(iii) Historical CAT Costs Incurred in Financial Accountability 
Milestone Period 2
    Historical CAT Costs 1 would include costs incurred by CAT LLC and 
already funded by Participants during Period 2 of the Financial 
Accountability Milestones (``FAM Period 2''),\55\ which covers the 
period from August 1, 2020--December 31, 2020. Historical CAT Costs 1 
would include costs for FAM Period 2 of $42,976,478. The Participants 
would remain responsible for one-third of this cost (which they have 
previously paid) ($14,325,493), and Industry Members would be 
responsible for the remaining two-thirds, with CEBBs paying one-third 
($14,325,493) and CEBSs paying one-third ($14,325,493). The following 
table breaks down Historical CAT Costs 1 for FAM Period 2 into the 
categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS 
Plan.\56\
---------------------------------------------------------------------------

    \55\ Section 11.6(a)(i)(B) of the CAT NMS Plan.
    \56\ The costs described in this table of costs for FAM Period 2 
were calculated based upon CAT LLC's review of applicable bills and 
invoices and related financial statements. CAT LLC financial 
statements are available on the CAT website.
    \57\ As discussed above, with respect to certain costs that were 
``appropriately excluded,'' such excluded costs relate to the 
amortization of capitalized technology costs, which are amortized 
over the life of the Plan Processor Agreement. As such costs have 
already been otherwise reflected in the filing, their inclusion 
would double count the capitalized technology costs. In addition, 
amortization is a non-cash expense.

------------------------------------------------------------------------
                                                   Historical CAT costs
               Operating expense                     for FAM Period 2
------------------------------------------------------------------------
Capitalized Developed Technology Costs *.......               $6,761,094
Technology Costs...............................               31,460,033
    Cloud Hosting Services.....................               20,709,212
    Operating Fees.............................                9,108,700
    CAIS Operating Fees........................                1,590,298
    Change Request Fees........................                   51,823
Legal..........................................                2,766,644
Consulting.....................................                  532,146
Insurance......................................                  976,098
Professional and administration................                  438,523
Public relations...............................                   41,940
                                                ------------------------
    Total Operating Expenses...................               42,976,478
------------------------------------------------------------------------
* The non-cash amortization of these capitalized developed technology
  costs of $1,892,505 incurred during FAM Period 2 have been
  appropriately excluded from the above table.\57\


[[Page 76638]]

    By the completion of FAM Period 2, CAT LLC was required to 
implement the following with regard to the CAT:

    (a) Industry Member reporting (excluding reporting by Small 
Industry Members that are not OATS reporters) for equities 
transactions, excluding Customer Account Information, CustomerID, 
and Customer Identifying Information, is developed, tested, and 
implemented at a 5% Error Rate or less and with sufficient intra-
firm linkage, inter-firm linkage, national securities exchange 
linkage, and trade reporting facilities linkage to permit the 
Participants and the Commission to analyze the full lifecycle of an 
order across the national market system, excluding linkage of 
representative orders, from order origination through order 
execution or order cancellation; and (b) the query tool 
functionality required by Section 6.10(c)(i)(A) and Appendix D, 
Sections 8.1.1-8.1.3 and Section 8.2.1 incorporates the Industry 
Member equities transaction data described in condition (a) and is 
available to the Participants and to the Commission.\58\
---------------------------------------------------------------------------

    \58\ See definition of ``Full Implementation of Core Equity 
Reporting Requirements'' in Section 1.1 of the CAT NMS Plan.

    CAT LLC completed the requirements of FAM Period 2 by December 31, 
2020. The following describes the costs for each of the categories for 
FAM Period 2.
(a) Technology Costs--Cloud Hosting Services
    CAT LLC continued to utilize AWS in FAM Period 2 to provide a broad 
array of cloud hosting services for the CAT, including data ingestion, 
data management, and analytic tools. AWS continued to provide storage 
services, databases, compute services and other services (such as 
networking, management tools and DevOps tools), as well as various 
environments for CAT, such as development, performance testing, test, 
and production environments, during FAM Period 2. Accordingly, the 
$20,709,212 in technology costs for cloud hosting services represent 
costs incurred for services provided by AWS, as the cloud services 
provider, during FAM Period 2. The fee arrangement for AWS described 
above with regard to the Pre-FAM Period and FAM Period 1 continued in 
place during FAM Period 2 pursuant to the Plan Processor Agreement.
    The cost for AWS cloud services for the CAT continued to be a 
function of the volume of CAT Data. During the FAM Period 2, the volume 
of CAT Data continued to far exceed the original predictions for the 
CAT as set forth in the CAT NMS Plan. During this period, data 
submitted to the CAT included options and equities Participant Data, 
Phase 2a and Phase 2b Industry Member Data (including certain linkages) 
as well as SIP Data, and Other Data, including reference data. In 
addition, Industry Members began reporting LTID account information. 
The following chart provides data regarding the average daily volume, 
cumulative total events, total compute hours and storage footprint of 
the CAT during FAM Period 2.\59\
---------------------------------------------------------------------------

    \59\ Note that the volume data described in this table does not 
include CAIS data.

------------------------------------------------------------------------
                                                  Date range: 8/1/20-12/
                                                          31/20
------------------------------------------------------------------------
Average Daily Volume in Billions:
    Participant--Equities......................                        6
    Participant--Options.......................                      116
    Industry Member--Equities..................                       11
    Industry Member--Options...................                     0.98
    SIP--Options & Equities....................                       80
    Average Total Daily Volume.................                      282
Cumulative Total Events for the Period.........                    2,170
Total Compute Hours for the Period.............               15,660,392
Storage Footprint at End of Period (Petabytes).                   114.59
------------------------------------------------------------------------

(b) Technology Costs--Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, FCAT 
continued in its role as the Plan Processor for the CAT during FAM 
Period 2. Accordingly, the $9,108,700 in technology costs for operating 
fees represent costs incurred for the services provided by FCAT under 
the Plan Processor Agreement during FAM Period 2. The fee arrangement 
for FCAT described above with regard to the Pre-FAM Period and FAM 
Period 1 continued in place during FAM Period 2 pursuant to the Plan 
Processor Agreement. During FAM Period 2, FCAT's activities with 
respect to the CAT included publishing the Technical Specifications for 
Phase 2d and overseeing the reporting of firm to firm and intrafirm 
linkages by Industry Members. In addition, FCAT also continued to 
engage in the following activities during FAM Period 2:
    <bullet> Addressed compliance items, including drafting CAT 
policies and procedures, and addressing Regulation SCI requirements;
    <bullet> Provided support to the Operating Committee, Compliance 
Subcommittee and CAT working groups;
    <bullet> Assisted with interpretive efforts and exemptive requests 
regarding the CAT NMS Plan;
    <bullet> Oversaw the development and implementation of the security 
of the CAT;
    <bullet> Monitored the operation of the CAT, including with regard 
to Participant and Industry Member reporting;
    <bullet> Provided support to subcontractors under the Plan 
Processor Agreement;
    <bullet> Provided support in discussions with the Participants and 
the SEC and its staff;
    <bullet> Operated the FINRA CAT Helpdesk;
    <bullet> Facilitated communications with the industry, including 
via FAQs, CAT Alerts, meetings, presentations and webinars);
    <bullet> Administered the CAT website and all of its content; and
    <bullet> Provided technical support and assistance with 
connectivity, data access, and user support, including the use of CAT 
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, Kingland 
continued in its role as a subcontractor for the development and 
implementation of CAIS during FAM Period 2. Accordingly, the $1,590,298 
in technology costs for CAIS operating fees represent costs incurred 
for services provided by Kingland during FAM Period 2. The fee 
arrangement for Kingland described above with regard to the Pre-FAM 
Period and FAM Period 1 continued in place during FAM Period

[[Page 76639]]

2 pursuant to the Plan Processor Agreement. During FAM Period 2, 
Kingland continued the development of the CAIS Technical Specifications 
and building of CAIS. In addition, Kingland continued to work on the 
CAIS Technical Specifications and build related to the CCID 
Alternative, as well as the acceleration of the reporting of LTIDs.
(d) Technology Costs--Change Request Fees
    During FAM Period 2, CAT LLC engaged FCAT to pursue certain change 
requests in accordance with the Plan Processor Agreement. The change 
request costs were paid by CAT LLC to FCAT. Specifically, during the 
FAM Period 2, CAT incurred costs of $51,823 related to a change request 
regarding the addition of functionality for exchange Participants to 
report rejected messages to the CAT.
(e) Technology Costs--Capitalized Developed Technology Costs
    Capitalized developed technology costs for FAM Period 2 of 
$6,761,094 include capitalizable application development costs incurred 
in the development of the CAT by FCAT. Such costs include (1) 
development costs incurred during the application development stage to 
meet various agreed-upon milestones regarding the CAT, as defined in 
the agreement between CAT LLC and the Plan Processor; (2) costs related 
to certain modifications, upgrades, or other changes to the CAT that 
were not contemplated by the agreement between CAT LLC and the Plan 
Processor, including costs related to separate production and industry 
test entitlements, market maker reference data, and back-processing of 
exchange exception logic; (3) implementation fees; and (4) license 
fees.
(f) Legal Costs
    The legal costs of $2,766,644 represent the fees paid for legal 
services provided by two law firms, WilmerHale and Pillsbury during FAM 
Period 2.
    Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during 
FAM Period 2 based on, among other things, their expertise and long 
history with the project. The hourly fee rates for this law firm were 
in line with market rates for specialized legal expertise. The legal 
fees during FAM Period 2 were paid by CAT LLC to WilmerHale. During FAM 
Period 2, the legal assistance provided by WilmerHale included 
providing legal advice regarding the following:
    <bullet> Assisted with the development of the CAT funding model and 
drafting related amendments and rule filings;
    <bullet> Drafted exemptive requests from CAT NMS Plan requirements 
regarding, for example, allocations, exchange activity, OTQT, initial 
data validation, error corrections and recordkeeping;
    <bullet> Provided interpretations related to CAT NMS Plan 
requirements, including with regard to the Financial Accountability 
Milestone amendment, FAQs and technical specifications;
    <bullet> Provided support for the Operating Committee, Compliance 
Subcommittees, working groups and Leadership Team, including with 
regard to meetings with the SEC staff;
    <bullet> Assisted with the Implementation Plan and Quarterly 
Progress Reports required pursuant to Section 6.6 of the CAT NMS Plan;
    <bullet> Drafted SRO rule filings related to the CAT Compliance 
Rule;
    <bullet> Provided support for the Compliance Subcommittee, 
including with regard to responses to OCIE examinations and the annual 
assessment;
    <bullet> Provided guidance regarding the SEC's proposed security 
amendments to the CAT NMS Plan;
    <bullet> Provided guidance regarding SRO rule filings for the 
retirement of systems;
    <bullet> Provided legal support for Operating Committee meetings, 
including drafting resolutions and other materials and voting advice;
    <bullet> Assisted with third-party vendor agreements (e.g., with 
regard to Anchin, Grant Thornton and insurance policies);
    <bullet> Assisted with change requests; and
    <bullet> Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretive and 
implementation issues.
    Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during 
FAM Period 2 based on, among other things, their expertise and history 
with the project. The hourly fee rates for this law firm were in line 
with market rates for specialized legal expertise. The legal fees 
during FAM Period 2 were paid by CAT LLC to Pillsbury. During FAM 
Period 2, Pillsbury provided legal assistance to the CAT regarding the 
CAT Reporter Agreement. During that period, Pillsbury advised CAT LLC 
regarding applicable legal matters and drafted and filed a proposed 
amendment to the CAT NMS Plan regarding liability matters. As discussed 
above, liability issues related to the CAT are important matters that 
needed to be resolved and clarified. CAT LLC's efforts to seek such 
resolution and clarity work to the benefit of Participants, Industry 
Members and other market participants.
(g) Consulting Costs
    The consulting costs of $532,146 represent the fees paid to 
Deloitte as project manager during FAM Period 2. CAT LLC continued to 
employ Deloitte during FAM Period 2 based on, among other things, their 
expertise and long history with the project. The fee rates for Deloitte 
during FAM Period 2 were negotiated and in line with market rates for 
this type of specialized consulting work. The consulting fees during 
FAM Period 2 were paid to Deloitte by CAT LLC. CAT LLC reviewed the 
consulting fees each month and approved the invoices. During FAM Period 
2, Deloitte's CAT-related activities included the following:
    <bullet> Implemented program operations for the CAT project;
    <bullet> Provided support to the Operating Committee, the Chair of 
the Operating Committee and the Leadership Team, including project 
management support, coordination and planning for meetings and 
communications, and interfacing with law firms and the SEC;
    <bullet> Assisted with cost and funding matters for the CAT, 
including the development of the CAT funding model and assistance with 
loans and the CAT bank account for CAT funding;
    <bullet> Provided support for updating the SEC on the progress of 
the development of the CAT; and
    <bullet> Provided support for third-party vendors for the CAT, 
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
    The insurance costs of $976,098 represent the fees paid for 
insurance during FAM Period 2. CAT LLC continued to maintain cyber 
security liability insurance, directors' and officers' liability 
insurance, and errors and omissions liability insurance offered by USI. 
After engaging in a process for renewing the coverage, CAT LLC 
determined to purchase these insurance policies from USI. The annual 
premiums for these policies were competitive for the coverage provided. 
The annual premiums were paid by CAT LLC to USI.
(i) Professional and Administration Costs
    The professional and administration costs of $438,523 represent the 
fees paid to Anchin and Grant Thornton for financial services provided 
during FAM Period 2.
    Financial Advisory Firm: Anchin. CAT LLC continued to engage Anchin 
during FAM Period 2 based on, among other things, their expertise and 
history

[[Page 76640]]

with the project. The hourly fee rates for this firm were in line with 
market rates for these types of financial advisory services. The fees 
for these services during FAM Period 2 were paid by CAT LLC to Anchin. 
During FAM Period 2, Anchin provided a variety of services, including 
the following:
    <bullet> Updated and maintained internal controls;
    <bullet> Provided cash management and treasury functions;
    <bullet> Facilitated bill payments;
    <bullet> Provided monthly bookkeeping;
    <bullet> Reviewed vendor invoices and documentation in support of 
cash disbursements;
    <bullet> Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
    <bullet> Addressed not-for-profit tax and accounting 
considerations;
    <bullet> Prepared tax returns;
    <bullet> Addressed various accounting, financial reporting and 
operating inquiries from the Participants;
    <bullet> Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
    <bullet> Supported compliance with the CAT NMS Plan;
    <bullet> Worked with and provided support to the Operating 
Committee and various CAT working groups;
    <bullet> Prepared monthly, quarterly and annual financial 
statements;
    <bullet> Supported the annual financial statement audit by an 
independent auditor; and
    <bullet> Reviewed historical costs from inception.
    Accounting Firm: Grant Thornton. CAT LLC continued to employ the 
accounting firm Grant Thornton during FAM Period 2 based on, among 
other things, its expertise and cumulative knowledge of CAT LLC. CAT 
LLC continued to believe that Grant Thornton was well qualified for its 
role and its fee rates were in line with market rates for these 
accounting services. The fees for these services during FAM Period 2 
were paid by CAT LLC to Grant Thornton. During FAM Period 2, Grant 
Thornton performed a financial statement audit for CAT LLC as an 
independent accounting firm.
(j) Public Relations Costs
    The public relations costs of $41,940 represent the fees paid to 
Peak Strategies during FAM Period 2. CAT LLC continued to employ Peak 
Strategies during FAM Period 2 based on, among other things, their 
expertise and history with the project. The fee rates for this firm 
were in line with market rates for these types of services. The fees 
for these services during FAM Period 2 were paid by CAT LLC to Peak 
Strategies. During FAM Period 2, Peak Strategies continued to provide 
professional communications services to CAT, including media relations 
consulting, strategy and execution. Specifically, the public relations 
firm provided services related to communications with the public 
regarding the CAT, including monitoring developments related to the CAT 
(e.g., congressional efforts, public comments and reaction to 
proposals, press coverage of the CAT), reporting such developments to 
CAT LLC, and drafting and disseminating communications to the public 
regarding such developments as well as reporting on developments 
related to the CAT (e.g., amendments to the CAT NMS Plan). As discussed 
above, such public relations services were important for various 
reasons, including monitoring comments made by market participants 
about the CAT and understanding issues related to the CAT discussed on 
the public record. By engaging a public relations firm, CAT LLC was 
better positioned to understand and address CAT matters to the benefit 
of all market participants.
(iv) Historical CAT Costs Incurred in Financial Accountability 
Milestone Period 3
    Historical CAT Costs 1 would include costs incurred by CAT and 
already funded by the Participants during Period 3 of the Financial 
Accountability Milestones (``FAM Period 3''),\60\ which covers the 
period from January 1, 2021-December 31, 2021. Historical CAT Costs 1 
would include costs for FAM Period 3 of $144,415,268. The Participants 
would remain responsible for one-third of this cost (which they have 
previously paid) ($48,138,423), and Industry Members would be 
responsible for the remaining two-thirds, with CEBBs paying one-third 
($48,138,423) and CEBSs paying one-third ($48,138,423). The following 
table breaks down Historical CAT Costs 1 for FAM Period 3 into the 
categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS 
Plan.\61\
---------------------------------------------------------------------------

    \60\ Section 11.6(a)(i)(C) of the CAT NMS Plan.
    \61\ The costs described in this table of costs for FAM Period 3 
were calculated based upon CAT LLC's review of applicable bills and 
invoices and related financial statements. CAT LLC financial 
statements are available on the CAT website.
    \62\ As discussed above, with respect to certain costs that were 
``appropriately excluded,'' such excluded costs relate to the 
amortization of capitalized technology costs, which are amortized 
over the life of the Plan Processor Agreement. As such costs have 
already been otherwise reflected in the filing, their inclusion 
would double count the capitalized technology costs. In addition, 
amortization is a non-cash expense.

------------------------------------------------------------------------
                                                   Historical CAT costs
               Operating expense                     for FAM Period 3
------------------------------------------------------------------------
Capitalized Developed Technology Costs *.......              $10,763,372
Technology Costs...............................              123,639,402
    Cloud Hosting Services.....................               94,574,759
    Operating Fees.............................               23,106,091
    CAIS Operating Fees........................                5,562,383
    Change Request Fees........................                  396,169
Legal..........................................                6,333,248
Consulting.....................................                1,408,209
Insurance......................................                1,582,714
Professional and administration................                  595,923
Public relations...............................                   92,400
                                                ------------------------
    Total Operating Expenses...................              144,415,268
------------------------------------------------------------------------
* The non-cash amortization of these capitalized developed technology
  costs of $5,108,044 incurred during FAM Period 3 have been
  appropriately excluded from the above table.\62\


[[Page 76641]]

    By the completion of FAM Period 3, CAT LLC was required to 
implement the following requirements with regard the CAT:

    (a) reporting to the Order Audit Trail System (``OATS'') is no 
longer required for new orders; (b) Industry Member reporting for 
equities transactions and simple electronic options transactions, 
excluding Customer Account Information, Customer-ID, and Customer 
Identifying Information, with sufficient intra-firm linkage, inter-
firm linkage, national securities exchange linkage, trade reporting 
facilities linkage, and representative order linkages (including any 
equities allocation information provided in an Allocation Report) to 
permit the Participants and the Commission to analyze the full 
lifecycle of an order across the national market system, from order 
origination through order execution or order cancellation, is 
developed, tested, and implemented at a 5% Error Rate or less; (c) 
Industry Member reporting for manual options transactions and 
complex options transactions, excluding Customer Account 
Information, Customer-ID, and Customer Identifying Information, with 
all required linkages to permit the Participants and the Commission 
to analyze the full lifecycle of an order across the national market 
system, from order origination through order execution or order 
cancellation, including any options allocation information provided 
in an Allocation Report, is developed, tested, and fully 
implemented; (d) the query tool functionality required by Section 
6.10(c)(i)(A) and Appendix D, Sections 8.1.1-8.1.3, Section 8.2.1, 
and Section 8.5 incorporates the data described in conditions (b)-
(c) and is available to the Participants and to the Commission; and 
(e) the requirements of Section 6.10(a) are met.\63\
---------------------------------------------------------------------------

    \63\ See definition of ``Full Availability and Regulatory 
Utilization of Transactional Database Functionality'' in Section 1.1 
of the CAT NMS Plan.

    CAT LLC completed the requirements of FAM Period 3 by December 31, 
2021. The following describes the costs for each of the categories for 
FAM Period 3.
(a) Technology Costs--Cloud Hosting Services
    CAT LLC continued to utilize AWS in FAM Period 3 to provide a broad 
array of cloud hosting services for the CAT, including data ingestion, 
data management, and analytic tools. AWS continued to provide storage 
services, databases, compute services and other services (such as 
networking, management tools and DevOps tools), as well as various 
environments for CAT, such as development, performance testing, test, 
and production environments, during the FAM Period 3. Accordingly, the 
$94,574,759 in technology costs for cloud hosting services represents 
costs incurred for services provided by AWS, as the cloud services 
provider, during FAM Period 3. The fee arrangement for AWS described 
above for the earlier periods continued in place during FAM Period 3 
pursuant to the Plan Processor Agreement.
    The cost for AWS cloud services for the CAT continued to be a 
function of the volume of CAT Data. During FAM Period 3, the volume of 
CAT Data continued to far exceed the original predictions for the CAT 
as set forth in the CAT NMS Plan. During this period, data submitted to 
the CAT included options and equities Participant Data, Phase 2a, Phase 
2b, Phase 2c and Phase 2d Industry Member Data (including certain 
linkages), SIP Data, Other Data, including reference data, and LTID 
account information. The following chart provides data regarding the 
average daily volume, cumulative total events, total compute hours and 
storage footprint of the CAT during FAM Period 3.\64\
---------------------------------------------------------------------------

    \64\ Note that the volume data described in this table does not 
include CAIS data.

----------------------------------------------------------------------------------------------------------------
                                                                Date range: 1/1/21 to 4/  Date range: 4/26/21 to
                                                                         25/21                  12/31/21 *
----------------------------------------------------------------------------------------------------------------
Average Daily Volume in Billions:
    Participant--Equities.....................................                        9                        9
    Participant--Options......................................                      135                      136
    Industry Member--Equities.................................                       20                       19
    Industry Member--Options..................................                        2                        2
    SIP--Options & Equities...................................                      129                      137
    Average Total Daily Volume................................                      297                      304
Cumulative Total Events for the Period........................                    7,480                    5,310
Total Compute Hours for the Period............................               15,860,304               33,487,318
                                                               -------------------------------------------------
Storage Footprint at End of Period (Petabytes)................                   180.22                   284.62
----------------------------------------------------------------------------------------------------------------
* Start of Participant Equities in CAT format and SIP Equities on 4/26/21.

(b) Technology Costs--Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, FCAT 
continued in its role as the Plan Processor for the CAT during FAM 
Period 3. Accordingly, the $23,106,091 in technology costs for 
operating fees represent costs incurred for the services provided by 
FCAT under the Plan Processor Agreement, during FAM Period 3. The fee 
arrangement for FCAT described above with regard to the prior Periods 
continued in place during FAM Period 3 pursuant to the Plan Processor 
Agreement. During FAM Period 3, FCAT's activities with respect to the 
CAT included the following:
    <bullet> Facilitated Phase 2c and Phase 2d testing for Industry 
Members;
    <bullet> Oversaw creation of linkages of the lifecycle of order 
events based on the received data through Phase 2d;
    <bullet> Addressed compliance items, including drafting CAT 
policies and procedures, and addressing Regulation SCI requirements;
    <bullet> Provided support to the Operating Committee, the 
Compliance Subcommittee and CAT working groups;
    <bullet> Assisted with interpretive efforts and exemptive requests 
regarding the CAT NMS Plan;
    <bullet> Oversaw the security of the CAT;
    <bullet> Monitored the operation of the CAT, including with regard 
to Participant and Industry Member reporting;
    <bullet> Provided support to subcontractors under the Plan 
Processor Agreement;
    <bullet> Provided support in discussions with the Participants and 
the SEC and its staff;
    <bullet> Operated the FINRA CAT Helpdesk;
    <bullet> Facilitated communications with the industry, including 
via FAQs, CAT Alerts, meetings, presentations and webinars;
    <bullet> Administered the CAT website and all of its content; and
    <bullet> Provided technical support and assistance with 
connectivity, data access, and user support, including the use of CAT 
Data and query tools, for Participants and the SEC staff.

[[Page 76642]]

(c) Technology Costs--CAIS Operating Fees
    Pursuant to the Plan Processor Agreement with FCAT discussed above, 
Kingland continued in its role as a subcontractor for the development 
and implementation of CAIS during FAM Period 3. Accordingly, the 
$5,562,383 in technology costs for CAIS operating fees represents costs 
incurred for services provided by Kingland during FAM Period 3. The fee 
arrangement for Kingland described above with regard to the prior 
Periods continued in place during FAM Period 3 pursuant to the Plan 
Processor Agreement. During FAM Period 3, Kingland continued the 
development of the CAIS Technical Specifications and building of CAIS. 
In addition, Kingland continued to work on the CAIS Technical 
Specifications and build related to the CCID Alternative, as well as 
the acceleration of the reporting of LTIDs. The full CAIS Technical 
Specifications were published during FAM Period 3.
(d) Technology Costs--Change Request Fees
    During FAM Period 3, CAT LLC engaged FCAT to pursue certain change 
requests in accordance with the Plan Processor Agreement. The change 
request costs were paid by CAT LLC to FCAT. Specifically, during the 
FAM Period 3, CAT incurred costs of $396,169 related to change 
requests, including the following: (1) the addition of functionality 
for exchange Participants to report rejected messages to the CAT; (2) 
the migration of MIRS query engine to AWS to reduce operational costs 
and increase resiliency; and (3) updating the Participant Technical 
Specifications to allow for two-sided Participant option quote 
reporting.
(e) Technology Costs--Capitalized Developed Technology Costs
    Capitalized developed technology costs for FAM Period 3 of 
$10,763,372 include capitalizable application development costs 
incurred in the development of the CAT by FCAT. Such costs include (1) 
development costs incurred during the application development stage to 
meet various agreed-upon milestones regarding the CAT, as defined in 
the agreement between CAT LLC and the Plan Processor, including the 
transition from equity data received by FINRA pursuant to various 
regulatory services agreements between FINRA and Participant exchanges 
to the equity CAT Data, and the completion of the Industry Member Phase 
2d options manual and complex orders go-live requirements; (2) costs 
related to certain modifications, upgrades, or other changes to the CAT 
that were not contemplated by the agreement between CAT LLC and the 
Plan Processor, including costs related to off-exchange volume 
concentration, Participant 24-hour trading and an external metastore; 
(3) implementation fees; and (4) license fees.
(f) Legal Costs
    The legal costs of $6,333,248 represent the fees paid for legal 
services provided by three law firms, WilmerHale, Pillsbury and 
Covington & Burling LLP (``Covington'') during FAM Period 3.
    Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during 
FAM Period 3 based on, among other things, their expertise and long 
history with the project. The hourly fee rates for this law firm were 
in line with market rates for specialized legal expertise. The legal 
fees during FAM Period 3 were paid by CAT LLC to WilmerHale. During FAM 
Period 3, the legal assistance provided by WilmerHale included 
providing legal advice regarding the following:
    <bullet> Assisted with the development of the CAT funding model and 
drafting related amendments and rule filings;
    <bullet> Drafted exemptive requests from CAT NMS Plan requirements, 
including, for example, verbal activity regarding Phase 2c cutover; 
error reports, error corrections, Phase 2d Reporting; unique Order-ID 
on internal route events; reporting addresses; recordkeeping, and 
unique CCID for foreign customers;
    <bullet> Provided interpretations related to CAT NMS Plan 
requirements, including with regard to the Financial Accountability 
Milestone amendment, FAQs, CAIS requirements, ADF, and technical 
specifications;
    <bullet> Provided support for the Operating Committee, Compliance 
Subcommittee, working groups and Leadership Team, including with regard 
to meetings with the SEC staff;
    <bullet> Assisted with the Implementation Plan and Quarterly 
Progress Reports required pursuant to Section 6.6(c) of the CAT NMS 
Plan;
    <bullet> Drafted SRO rule filings related to the CAT Compliance 
Rule;
    <bullet> Provided support for Compliance Subcommittee, including 
with regard to responses to OCIE examinations and the annual 
assessment;
    <bullet> Provided guidance regarding the SEC's proposed security 
amendments to the CAT NMS Plan;
    <bullet> Provided guidance regarding SRO rule filings for the 
retirement of systems;
    <bullet> Provided legal support for Operating Committee meetings, 
including drafting resolutions and other materials and voting advice;
    <bullet> Provided assistance with change requests;
    <bullet> Provided guidance and regulatory support for litigation 
regarding the response to the SEC's exemptive orders;
    <bullet> Assisted with communications with the industry, includng 
CAT Alerts and presentations;
    <bullet> Provided guidance regarding the confidentiality of CAT 
Data, including third-party information requests;
    <bullet> Assisted with cost management analysis and proposals; and
    <bullet> Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretive and 
implementation issues.
    Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during 
FAM Period 3 based on, among other things, their expertise and history 
with the project. The hourly fee rates for this law firm were in line 
with market rates for specialized legal expertise. The legal fees 
during FAM Period 3 were paid by CAT LLC to Pillsbury. During FAM 
Period 3, Pillsbury provided legal assistance to the CAT regarding the 
CAT Reporter Agreement. During this period, Pillsbury advised CAT LLC 
regarding applicable legal matters, reviewed and responded to comment 
letters regarding the proposed Plan amendment, participated in meetings 
with senior SEC staff, responded to comments submitted following the 
SEC's April 6, 2021 order instituting proceedings,\65\ and assessed 
legal matters regarding the SEC's October 29, 2021 order denying the 
proposed Plan amendment.\66\
---------------------------------------------------------------------------

    \65\ Securities Exchange Act Release. No. 91487 (April 6, 2021), 
86 FR 19054 (April 12, 2021).
    \66\ Securities Exchange Act Release. No. 93484 (October 29, 
2021), 86 FR 60933 (November 4, 2021).
---------------------------------------------------------------------------

    Law Firm: Covington. CAT LLC hired Covington for litigation with 
the SEC regarding certain exemptive orders related to the CAT, 
including orders issued in December 2020.\67\ CAT LLC interviewed this 
law firm as well as other potential law firms, considering a variety of 
factors in its analysis for choosing legal assistance, including the 
relevant expertise and fees of the potential lawyers. CAT LLC approved 
the engagement of Covington in January 2021. The fee rates for this law 
firm, which were calculated based on hourly rates, were in line with 
market rates for

[[Page 76643]]

specialized services. The legal fees for FAM Period 3 for this firm 
were paid by CAT LLC to Covington.
---------------------------------------------------------------------------

    \67\ See Securities Exchange Act Release No. 90688 (December 16, 
2020), 85 FR 83634 (December 22, 2020); and Securities Exchange Act 
Release No. 90689 (December 16, 2020), 85 FR 83667 (December 22, 
2020) (collectively, the ``2020 Orders'').
---------------------------------------------------------------------------

    After Covington was hired in 2021 through the end of 2021, the firm 
provided legal assistance regarding the litigation with the SEC 
regarding the 2020 Orders. These services included researching, 
drafting, and filing motions to stay the 2020 Orders and related 
materials in proceedings before the SEC, as well as researching, 
drafting, and filing petitions for judicial review of the 2020 Orders 
in proceedings before the U.S. Court of Appeals for the D.C. Circuit. 
Covington oversaw ongoing litigation proceedings on these matters, and 
also supported WilmerHale with respect to settlement negotiations with 
the SEC staff regarding the 2020 Orders.
    In addition to these services, CAT LLC engaged Covington in 
November 2021 to provide assistance with respect to the SEC's 
disapproval of CAT NMS Plan amendments concerning a proposed limitation 
on liability in the event of a data breach or similar event. Covington 
provided advice concerning CAT's response to the SEC's disapproval 
order. This work accounted for a minority of Covington's fees in 
2021.\68\
---------------------------------------------------------------------------

    \68\ As discussed above with regard to Pillsbury's work on 
liability matters, liability issues related to the CAT are important 
matters that needed to be resolved and clarified. CAT LLC's efforts 
to seek such resolution and clarity work to the benefit of 
Participants, Industry Members and other market participants. 
Moreover, such activity is a necessary part of the operation of the 
CAT.
---------------------------------------------------------------------------

(g) Consulting Costs
    The consulting costs of $1,408,209 represent the fees paid to 
Deloitte as project manager during FAM Period 3. CAT LLC continued to 
employ Deloitte during FAM Period 3 based on, among other things, their 
expertise and long history with the project. The fee rates for Deloitte 
during FAM Period 3 were negotiated and in line with market rates for 
this type of specialized consulting work. The consulting fees during 
FAM Period 3 were paid to Deloitte by CAT LLC. CAT LLC reviewed the 
consulting fees each month and approved the invoices. During FAM Period 
3, Deloitte's CAT-related activities included the following:
    <bullet> Implemented program operations for the CAT project;
    <bullet> Provided support to the Operating Committee, the Chair of 
the Operating Committee and the Leadership Team, including project 
management support, coordination and planning for meetings and 
communications, and interfacing with law firms and the SEC;
    <bullet> Assisted with cost and funding matters for the CAT, 
including the development of the CAT funding model and assistance with 
loans and the CAT bank account for CAT funding;
    <bullet> Provided support for updating the SEC on the progress of 
the development of the CAT; and
    <bullet> Provided support for third-party vendors for the CAT, 
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
    The insurance costs of $1,582,714 represent the fees paid for 
insurance during FAM Period 3. CAT LLC continued to maintain cyber 
security liability insurance, directors' and officers' liability 
insurance, and errors and omissions liability insurance offered by USI. 
After engaging in a process for renewing the coverage, CAT LLC 
determined to purchase these insurance policies from USI. The annual 
premiums for these policies were competitive for the coverage provided. 
The annual premiums were paid by CAT LLC to USI.
(i) Professional and Administration Costs
    The professional and administration costs of $595,923 represent the 
fees paid to Anchin and Grant Thornton for financial services during 
FAM Period 3.
    Financial Advisory Firm: Anchin. CAT LLC continued to employ Anchin 
during FAM Period 3 based on, among other things, their expertise and 
history with the project. The hourly fee rates for this firm were in 
line with market rates for these financial advisory services. The fees 
for these services during FAM Period 3 were paid by CAT LLC to Anchin. 
During FAM Period 3, Anchin provided a variety of services, including 
the following:
    <bullet> Updated and maintained internal controls;
    <bullet> Provided cash management and treasury functions;
    <bullet> Facilitated bill payments;
    <bullet> Provided monthly bookkeeping;
    <bullet> Reviewed vendor invoices and documentation in support of 
cash disbursements;
    <bullet> Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
    <bullet> Addressed not-for-profit tax and accounting 
considerations;
    <bullet> Prepared tax returns;
    <bullet> Addressed various accounting, financial reporting and 
operating inquiries from Participants;
    <bullet> Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
    <bullet> Supported compliance with the CAT NMS Plan;
    <bullet> Worked with and provided support to the Operating 
Committee and various CAT working groups;
    <bullet> Prepared monthly, quarterly and annual financial 
statements;
    <bullet> Supported the annual financial statement audits by an 
independent auditor;
    <bullet> Reviewed historical costs from inception; and
    <bullet> Provided accounting and financial information in support 
of SEC filings.
    Accounting Firm: Grant Thornton. CAT LLC continued to employ the 
accounting firm Grant Thornton during FAM Period 3 based on, among 
other things, their expertise and cumulative knowledge of CAT LLC. CAT 
LLC determined that Grant Thornton was well qualified for its role and 
that its fixed fee rates were in line with market rates for these 
accountant services. The fees for these services during FAM Period 3 
were paid by CAT LLC to Grant Thornton. During FAM Period 3, Grant 
Thornton provided audited financial statements for CAT LLC.
(j) Public Relations Costs
    The public relations costs of $92,400 represent the fees paid to 
Peak Strategies during FAM Period 3. CAT LLC continued to employ Peak 
Strategies during FAM Period 3 based on, among other things, their 
expertise and history with the project. The fee rates for this firm 
were in line with market rates for these types of services. The fees 
for these services during FAM Period 3 were paid by CAT LLC to Peak 
Strategies. During FAM Period 3, Peak Strategies continued to provide 
professional communications services to CAT, including media relations 
consulting, strategy and execution. Specifically, the public relations 
firm provided services related to communications with the public 
regarding the CAT, including monitoring developments related to the CAT 
(e.g., congressional efforts, public comments and reaction to 
proposals, press coverage of the CAT), reporting such developments to 
CAT LLC, and drafting and disseminating communications to the public 
regarding such developments as well as reporting on developments 
related to the CAT (e.g., amendments to the CAT NMS Plan). As discussed 
above, such public relations services were important for various 
reasons, including monitoring comments made by market participants 
about the CAT and understanding issues related to the CAT discussed on 
the public record. By engaging a public relations firm, CAT LLC was 
better positioned to understand and address

[[Page 76644]]

CAT matters to the benefit of all market participants.
(v) Excluded Costs
    Historical CAT Costs 1 would not include three categories of CAT 
costs (``Excluded Costs''): (1) $14,749,362 of costs related to the 
termination of the relationship with the Initial Plan Processor; (2) 
$48,874,937, which are all CAT costs incurred from November 15, 2017 
through November 15, 2018; and (3) $19,628,791, which are costs paid to 
the Initial Plan Processor from November 16, 2018 through February 2019 
when the relationship with the Initial Plan Processor was concluded. 
The Participants would remain responsible for 100% of these costs, 
which total $83,253,090. CAT LLC determined to exclude these Excluded 
Costs from Historical CAT Costs 1 because these costs relate to the 
delay in the start of reporting to the CAT and the conclusion of the 
relationship with the Initial Plan Processor.\69\
---------------------------------------------------------------------------

    \69\ In approving the CAT Funding Model, the Commission states 
that the proposed exclusion of the first two categories of Excluded 
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.'' See CAT Funding Model Approval 
Order, 88 FR 62628, 62663. In addition to the first two categories 
of Excluded Costs, CAT LLC is now proposing a third category of 
Excluded Costs that would exclude all costs paid to the Initial Plan 
Processor after November 15, 2018.
---------------------------------------------------------------------------

(a) Costs Related to Conclusion of Relationship With Initial Plan 
Processor
    First, Historical CAT Costs 1 would not include $14,749,362 of 
costs related to the conclusion of the relationship with the Initial 
Plan Processor. Such costs include costs related to the American 
Arbitration Association, the legal assistance of Pillsbury with regard 
to the arbitration with the Initial Plan Processor, and the settlement 
costs related to the arbitration with the Initial Plan Processor. The 
Participants would remain responsible for 100% of these $14,749,362 in 
costs.
(b) Costs Incurred From November 15, 2017 through November 15, 2018
    Second, Historical CAT Costs 1 would not include all CAT costs 
incurred from November 15, 2017 through November 15, 2018. CAT LLC 
determined to exclude all costs during this one-year period of 
$48,874,937 from fees charged to Industry Members due to the delay in 
the start of reporting to the CAT. The Participants would remain 
responsible for 100% of these $48,874,937 in costs. The following table 
breaks down these costs into the categories set forth in Section 
11.3(b)(iii)(B)(II) of the CAT NMS Plan.\70\
---------------------------------------------------------------------------

    \70\ The costs described in this table of Excluded Costs were 
calculated based upon CAT LLC's review of applicable bills and 
invoices and related financial statements. CAT LLC financial 
statements are available on the CAT website.

------------------------------------------------------------------------
                                                    Excluded costs for
               Operating expense                    November 15, 2017-
                                                    November 15, 2018
------------------------------------------------------------------------
Capitalized Developed Technology Costs.........              $37,852,083
Technology Costs...............................
    Cloud Hosting Services.....................
    Operating Fees.............................
    CAIS Operating Fees........................
    Change Request Fees........................
Legal..........................................                6,143,278
Consulting.....................................                4,452,106
Insurance......................................
Professional and administration................                  340,145
Public relations...............................                   87,325
                                                ------------------------
Total Operating Expenses.......................               48,874,937
------------------------------------------------------------------------

    The following provides additional detail regarding the Excluded 
Costs.
(I) Technology Costs--Cloud Hosting Services, Operating Fees, CAIS 
Operating Fees and Change Request Fees
    CAT LLC did not incur technology costs related to the categories of 
cloud hosting services, operating fees, CAIS operating fees or change 
requests during the period from November 15, 2017 through November 15, 
2018.
(II) Technology Costs--Capitalized Developed Technology Costs
    Capitalized developed technology costs for the period from November 
15, 2017 through November 15, 2018 include capitalizable application 
development costs of $37,852,083 incurred in the development of the CAT 
by the Initial Plan Processor. Such costs include development costs 
incurred during the application development stage to meet various 
agreed-upon milestones regarding the CAT, as defined in the agreement 
between CAT LLC and the Initial Plan Processor. Such costs include 
costs related to Industry Member technical specifications for orders 
and transactions, the system security plan, testing and production for 
Participant CAT reporting, third-party security assessment and 
response, query portal, onboarding of the Chief Information Security 
Officer, and ingestion of FINRA TRF data and FINRA data related to 
halts and corporate actions.
(III) Legal Costs
    The legal costs of $6,143,278 represent the fees paid to WilmerHale 
for legal services from November 15, 2017 through November 15, 2018. 
During this period, WilmerHale provided legal assistance to the CAT 
including with regard to the following:
    <bullet> Provided legal support for the governance of the CAT, 
including governance support for the Operating Committee, Advisory 
Committee, Compliance Subcommittee, and CAT working groups;
    <bullet> Assisted with the development of the CAT funding model and 
drafted related amendments of the CAT NMS Plan;
    <bullet> Provided assistance related to CAT security;
    <bullet> Drafted exemptive requests, including requests related to 
PII;
    <bullet> Assisted with the Implementation Plan required pursuant to 
Section 6.6(c)(i) of the CAT NMS Plan;
    <bullet> Provided interpretations of and related to the CAT NMS 
Plan;
    <bullet> Provided advice with regard to regulator access to the 
CAT;

[[Page 76645]]

    <bullet> Assisted with the Plan Processor transition;
    <bullet> Provided assistance regarding communications with the 
industry regarding the CAT;
    <bullet> Provided advice regarding Customer Account Information and 
PII;
    <bullet> Provided support for litigation related to SEC exemptive 
orders; and
    <bullet> Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretative and 
implementation issues.
(IV) Consulting Costs
    The consulting costs of $4,452,106 represent the fees paid to 
Deloitte for their role as project manager for the CAT from November 
15, 2017 through November 15, 2018. During this period, Deloitte 
engaged in the following activities with respect to the CAT:
    <bullet> Implemented program operations for the CAT project;
    <bullet> Provided governance support to the Operating Committee, 
including support for Subcommittees and working groups of the Operating 
Committee (e.g., Compliance Subcommittee, Cost and Funding Working 
Group, Technical Working Group, Industry Outreach Working Group, 
Security Working Group and Steering Committee);
    <bullet> Assisted with cost and funding issues for the CAT, 
including the development of the CAT funding model and assistance with 
loans and the CAT bank account for CAT funding;
    <bullet> Provided support for updating the SEC on the progress of 
the development of the CAT; and
    <bullet> Provided active planning and coordination with and support 
for the Initial Plan Processor with regard to the development of the 
CAT, and reported to the Participants on the progress.
(V) Insurance
    CAT LLC did not incur costs related to insurance during the period 
from November 15, 2017 through November 15, 2018.
(VI) Professional and Administration Costs
    The professional and administration costs of $340,145 represent the 
fees paid to Anchin, Exegy and RSM from November 15, 2017 through 
November 15, 2018.
    Financial Advisory Firm: Anchin. From the commencement of its 
engagement in April 2018 through November 15, 2018, Anchin engaged in 
the following activities with respect to the CAT:
    <bullet> Developed, updated and maintained internal controls;
    <bullet> Provided cash management and treasury functions;
    <bullet> Facilitated bill payments;
    <bullet> Provided monthly bookkeeping;
    <bullet> Reviewed vendor invoices and documentation in support of 
cash disbursements;
    <bullet> Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
    <bullet> Addressed not-for-profit tax and accounting 
considerations;
    <bullet> Prepared tax returns;
    <bullet> Addressed various accounting, financial reporting and 
operating inquiries from Participants;
    <bullet> Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
    <bullet> Addressed accounting and financial matters relating to the 
transition from CAT NMS, LLC to Consolidated Audit Trail, LLC, 
including supporting the dissolution of CAT NMS, LLC;
    <bullet> Supported compliance with the CAT NMS Plan;
    <bullet> Worked with and provided support to the Operating 
Committee and various CAT working groups;
    <bullet> Prepared monthly, quarterly and annual financial 
statements;
    <bullet> Supported the annual financial statement audits by an 
independent auditor;
    <bullet> Reviewed historical costs from inception; and
    <bullet> Provided accounting and financial information in support 
of SEC filings.
    Market Data Provider: Exegy. From July 2018 through November 15, 
2018, CAT LLC purchased market data from Exegy (as described in more 
detail above).
    Security Assessment: RSM. From October 2018 through November 15, 
2018, CAT LLC incurred costs for RSM's performance of a security 
assessment (as described in more detail above).
(VII) Public Relations Costs
    The public relations costs of $87,325 represent the fees paid to 
Sloane from November 15, 2017 through November 15, 2018. From the 
commencement of its engagement in March 2018 through November 15, 2018, 
Sloane provided professional communications services to CAT, including 
media relations consulting, strategy and execution. Specifically, 
Sloane provided services related to communications with the public 
regarding the CAT, including monitoring developments related to the CAT 
(e.g., congressional efforts, public comments and reaction to 
proposals, press coverage of the CAT), reporting such developments to 
CAT LLC, and drafting and disseminating communications to the public 
regarding such developments as well as reporting on developments 
related to the CAT (e.g., amendments to the CAT NMS Plan).
(c) Costs Paid to Initial Plan Processor From November 16, 2018 Through 
February 2019
    Third, Historical CAT Costs 1 would not include the $19,628,791 in 
costs paid to the Initial Plan Processor from November 16, 2018 through 
February 2019 when CAT LLC's relationship with the Initial Plan 
Processor concluded. CAT LLC determined that Historical CAT Costs 1 
would not include any fees paid to the Initial Plan Processor after 
November 15, 2017,\71\ which was the date by which Participants were 
required to begin reporting to the CAT.\72\ As discussed above, the 
Participants determined that Historical CAT Costs 1 would not include 
all CAT costs incurred from November 15, 2017 through November 15, 
2018, which includes $37,852,083 in Initial Plan Processor costs 
incurred from November 15, 2017 through November 15, 2018 (as well as 
other CAT costs during this period). The remaining Initial Plan 
Processor costs incurred after November 15, 2018 are the $19,628,791 in 
costs for the period from November 16, 2018 through February 2019 
incurred in the development of the CAT by the Initial Plan Processor, 
as well as a transition fee for the transition from the Initial Plan 
Processor to the successor Plan Processor. The Participants would 
remain responsible for 100% of these $19,628,791 in costs.
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    \71\ As discussed below, CAT LLC believes that it is appropriate 
to recover costs related to the services performed by the Initial 
Plan Processor prior to November 15, 2017. See Item 3(a)(10)(E) 
below.
    \72\ The SEC approved the CAT NMS Plan on November 15, 2016, and 
Participant reporting was required to begin on the first anniversary 
of this date, November 15, 2017. See Section 6.3 of the CAT NMS Plan 
and CAT NMS Plan Approval Order.
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(C) Historical Recovery Period 1
    Under the CAT NMS Plan, the Operating Committee is required to 
reasonably establish the length of the Historical Recovery Period used 
in calculating each Historical Fee Rate based upon the amount of the 
Historical CAT Costs to be recovered by the Historical CAT Assessment, 
and to describe the reasons for its length.\73\ The Historical Recovery 
Period used in calculating the Historical Fee Rate may not be less than 
24 months or more than

[[Page 76646]]

five years.\74\ The Operating Committee has determined to establish a 
Historical Recovery Period 1 of 24 months for Historical CAT Assessment 
1.
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    \73\ Section 11.3(b)(i)(D)(I) and Section 11.3(b)(iii)(B)(II) of 
the CAT NMS Plan.
    \74\ Section 11.3(b)(i)(D)(I) of the CAT NMS Plan. In the CAT 
Funding Model Approval Order, the SEC stated that ``[i]n 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.'' CAT Funding Model 
Approval Order, 88 FR 62628, 62664.
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    The Operating Committee determined that the length of Historical 
Recovery Period 1 appropriately weighs the need for a reasonable 
Historical Fee Rate 1 that spreads the Historical CAT Costs over an 
appropriate amount of time and the need to repay the loans to the 
Participants in a timely fashion. The Operating Committee determined 
that 24 months for Historical Recovery Period 1 would establish a fee 
rate that is lower than other transaction-based fees, including fees 
assessed pursuant to Section 31.\75\ In addition, in establishing a 
Historical Recovery Period of 24 months, the Operating Committee 
recognized that the total costs for Historical CAT Assessment 1 were 
less than the total costs for 2022 and 2023,\76\ and therefore it would 
be reasonable and appropriate to recover costs subject to this filing 
over an approximate two-year period.
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    \75\ As the SEC noted in the CAT Funding Model Approval Order, 
recent Section 31 fees ranged from $0.00009 per share to $0.0004 per 
share. CAT Funding Model Approval Order, 88 FR 62628, 62682.
    \76\ The total CAT costs for 2022 were approximately $186 
million and the total CAT costs for 2023 were approximately $233 
million.
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    The length of the Historical Recovery Period 1 and the reasons for 
its length are provided in this filing in accordance with the 
requirement in the CAT NMS Plan to provide such information in a fee 
filing for a Historical CAT Assessment.\77\
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    \77\ Section 11.3(b)(iii)(B)(II)(C) of the CAT NMS Plan.
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(D) Projected Total Executed Equivalent Share Volume
    The calculation of Historical Fee Rate 1 also requires the 
determination of the projected total executed equivalent share volume 
of transactions in Eligible Securities for Historical Recovery Period 
1. Under the CAT NMS Plan, the Operating Committee is required to 
``reasonably determine the projected total executed equivalent share 
volume of all transactions in Eligible Securities for each Historical 
Recovery Period based on the executed equivalent share volume of all 
transactions in Eligible Securities for the prior twelve months.'' \78\ 
The Operating Committee is required to base its projection on the prior 
twelve months, but it may use its discretion to analyze the likely 
volume for the upcoming year. Such discretion would allow the Operating 
Committee to use its judgment when estimating projected total executed 
equivalent share volume if the volume over the prior twelve months was 
unusual or otherwise unfit to serve as the basis of a future volume 
estimate.\79\
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    \78\ Section 11.3(b)(i)(E) of the CAT NMS Plan.
    \79\ See CAT Funding Model Approval Order, 88 FR 62628, 62664.
---------------------------------------------------------------------------

    The total executed equivalent share volume of transactions in 
Eligible Securities for the 12-month period from June 2023 through May 
2024 was 3,980,753,840,905.21 executed equivalent shares. The Operating 
Committee has determined to calculate the projected total executed 
equivalent share volume for the 24 months of Historical Recovery Period 
1 by doubling the executed equivalent share volume for the prior 12 
months. The Operating Committee determined that such an approach was 
reasonable as the CAT's annual executed equivalent share volume has 
remained relatively constant. For example, the executed equivalent 
share volume for 2021 was 3,963,697,612,395, the executed equivalent 
share volume for 2022 was 4,039,821,841,560.31, and the executed 
equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, 
the projected total executed equivalent share volume for Historical 
Recovery Period 1 is projected to be 7,961,507,681,810.42 executed 
equivalent shares.\80\
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    \80\ This projection was calculated by multiplying 
3,980,753,840,905.21 executed equivalent shares by two.
---------------------------------------------------------------------------

    The projected total executed equivalent share volume of all 
transactions in Eligible Securities for Historical Recovery Period 1 
and a description of the calculation of the projection is provided in 
this filing in accordance with the requirement in the CAT NMS Plan to 
provide such information in a fee filing for a Historical CAT 
Assessment.\81\
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    \81\ Section 11.3(b)(iii)(B)(II)(D) of the CAT NMS Plan.
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(E) Historical Fee Rate 1
    Historical Fee Rate 1 would be calculated by dividing Historical 
CAT Costs 1 by the reasonably projected total executed equivalent share 
volume of all transactions in Eligible Securities for Historical 
Recovery Period 1, as described in detail above.\82\ Specifically, 
Historical Fee Rate 1 would be calculated by dividing $318,059,819 by 
7,961,507,681,810.42. As a result, the Historical Fee Rate 1 would be 
$0.00003994969693072937 per executed equivalent share. Historical Fee 
Rate 1 is provided in this filing in accordance with the requirement in 
the CAT NMS Plan to provide the Historical Fee Rate in a fee filing for 
a Historical CAT Assessment.\83\
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    \82\ In approving the CAT Funding Model, the Commission stated 
that ``[t]he calculation of the Historical Fee Rate by dividing the 
Historical CAT Costs by the projected total executed equivalent 
share volume of all transactions in Eligible Securities for the 
Historical Recovery Period is reasonable.'' See CAT Funding Model 
Approval Order, 88 FR 62628, 62664.
    \83\ Section 11.3(b)(iii)(B)(II)(A) of the CAT NMS Plan.
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(3) Past CAT Costs and Participants
    Participants would not be required to pay any fees associated with 
Historical CAT Assessment 1 as the Participants previously have paid 
all Past CAT Costs. The CAT NMS Plan explains that:

    Because Participants previously have paid Past CAT Costs via 
loans to the Company, Participants would not be required to pay any 
Historical CAT Assessment. In 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.\84\
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    \84\ Section 11.3(b)(ii) of the CAT NMS Plan.

    The CAT NMS Plan further states that ``Historical CAT Assessments 
are designed to recover two-thirds of the Historical CAT Costs.'' \85\
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    \85\ See supra note 84. In approving the CAT Funding Model, the 
Commission stated that ``[t]he 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,'' as the Participants' one-third share of 
Historical CAT Costs will be paid by the cancellation of loans made 
to the Company. CAT Funding Model Approval Order, 88 FR 62628, 
62666.
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(4) Monthly Fees
    CEBBs and CEBSs would be required to pay fees for Historical CAT 
Assessment 1 on a monthly basis for the period in which Historical CAT 
Assessment 1 is in effect.\86\ A CEBB or CEBS's fee for each month 
would be calculated based on the transactions in Eligible Securities 
executed by the CEBB or CEBS from the prior month.\87\ Proposed 
paragraph (a)(1)(A)(i) of Rule 6897 would state that each CAT Executing 
Broker would receive its first invoice in November 2024, and ``would 
receive an invoice each month thereafter in which Historical CAT 
Assessment 1

[[Page 76647]]

is in effect.'' Proposed paragraph (a)(1)(A)(ii) would state that 
``Consolidated Audited Trail, LLC shall provide each CAT Executing 
Broker with an invoice for Historical CAT Assessment 1 on a monthly 
basis.'' In addition, proposed paragraph (a)(2)(A) states that each 
CEBB and CEBS is required to pay its CAT fees ``each month.''
---------------------------------------------------------------------------

    \86\ See Section 11.3(b)(iii)(A) of the CAT NMS Plan.
    \87\ See proposed paragraph (a)(1)(A)(ii) of proposed Rule 6897.
---------------------------------------------------------------------------

(5) Actual Recovery Period for Historical CAT Assessment 1
    The CAT NMS Plan states that, ``[n]otwithstanding the length of the 
Historical Recovery Period used in calculating the Historical Fee Rate, 
each Historical CAT Assessment calculated using the Historical Fee Rate 
will remain in effect until all Historical CAT Costs for the Historical 
CAT Assessment are collected.'' \88\ Accordingly, Historical CAT 
Assessment 1 will remain in effect until all Historical CAT Costs 1 
have been collected. The actual recovery period for Historical CAT 
Assessment 1 may be shorter or longer than Historical Recovery Period 1 
depending on the actual executed equivalent share volumes during the 
time that Historical CAT Assessment 1 is in effect.\89\
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    \88\ Section 11.3(b)(i)(D)(II) of the CAT NMS Plan.
    \89\ In approving the CAT Funding Model, the Commission stated 
that ``[i]n 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.'' See CAT Funding Model Approval Order, 88 FR 62628, 
62665.
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(6) Consolidated Audit Trail Funding Fees
    To implement Historical CAT Assessment 1, FINRA proposes to adopt 
FINRA Rule 6897(a)(1)(A) (Historical CAT Assessment 1), including the 
proposed paragraphs described below.
(A) Historical CAT Assessment 1
    The CAT NMS Plan states that:

    Each month in which a Historical CAT Assessment is in effect, 
each CEBB and each CEBS shall pay a fee for each transaction in 
Eligible Securities executed by the CEBB or CEBS from the prior 
month as set forth in CAT Data, where the 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 paragraph 
(b)(i) of this Section 11.3.\90\
---------------------------------------------------------------------------

    \90\ Section 11.3(b)(iii)(A) of the CAT NMS Plan.

    Accordingly, based on the factors discussed above, FINRA proposes 
to adopt paragraph (a)(1)(A) of FINRA Rule 6897, which would state 
---------------------------------------------------------------------------
that:

    (i) Each CAT Executing Broker shall receive its first invoice 
for Historical CAT Assessment 1 in November 2024, which shall set 
forth the Historical CAT Assessment 1 fees calculated based on 
transactions in October 2024, and shall receive an invoice for 
Historical CAT Assessment 1 for each month thereafter in which 
Historical CAT Assessment 1 is in effect.
    (ii) Consolidated Audit Trail, LLC shall provide each CAT 
Executing Broker with an invoice for Historical CAT Assessment 1 on 
a monthly basis. Each month, such invoices shall set forth a fee for 
each transaction in Eligible Securities executed by the CAT 
Executing Broker in its capacity as a CAT Executing Broker for the 
Buyer (``CEBB'') and/or the CAT Executing Broker for the Seller 
(``CEBS'') (as applicable) from the prior month as set forth in CAT 
Data. The fee for each such transaction will be calculated by 
multiplying the number of executed equivalent shares in the 
transaction by the fee rate of $0.000013 per executed equivalent 
share.
    (iii) Historical CAT Assessment 1 will remain in effect until 
$212,039,879.34 (two-thirds of Historical CAT Costs 1) are collected 
from CAT Executing Brokers collectively, which is estimated to be 
approximately two years, but could be for a longer or shorter period 
of time. Consolidated Audit Trail, LLC will provide notice when 
Historical CAT Assessment 1 will no longer be in effect.
    (iv) Each CAT Executing Broker shall be required to pay each 
invoice for Historical CAT Assessment 1 in accordance with paragraph 
(a)(2) of this Rule.

    As noted in the Plan amendment for the CAT Funding Model, as a 
practical matter, the fee filing for a Historical CAT Assessment would 
provide the exact fee per executed equivalent share to be paid for each 
Historical CAT Assessment, by multiplying the Historical Fee Rate by 
one-third and describing the relevant number of decimal places for the 
fee rate.\91\ Accordingly, proposed paragraph (a)(1)(A)(ii) of Rule 
6897 would set forth a fee rate of $0.000013 per executed equivalent 
share. This fee rate is calculated by multiplying Historical Fee Rate 1 
of $0.00003994969693072937 by one-third, and rounding the result to 6 
decimal places.\92\ The Operating Committee determined to use six 
decimal places to balance the accuracy of the calculation with the 
potential systems and other impracticalities of using additional 
decimal places in the calculation.
---------------------------------------------------------------------------

    \91\ See CAT Funding Model Approval Order, 88 FR 62628, 62658 
n.658.
    \92\ Dividing $0.00003994969693072937 by three equals 
$0.00001331656564357646. Rounding $0.00001331656564357646 to six 
decimal places equals $0.000013.
---------------------------------------------------------------------------

    The proposed language in paragraph (a)(1)(A)(i) would describe when 
CAT Executing Brokers would receive their first monthly invoice for 
Historical CAT Assessment 1. Specifically, CAT Executing Brokers would 
receive their first monthly invoice for Historical CAT Assessment 1 in 
November 2024 and the fees set forth in that invoice would be 
calculated based on transactions executed in the prior month, that is, 
transactions executed in October 2024. The payment for the first 
invoice would be required within 30 days after the receipt of the first 
invoice (unless a longer period is indicated), as described in 
paragraph (a)(2)(B) of proposed Rule 6897.
    Proposed paragraph (a)(1)(A)(i) also would describe the monthly 
cadence of the invoices for Historical CAT Assessment 1. Specifically, 
after the first invoices are provided to CAT Executing Brokers in 
November 2024, invoices will be sent to CAT Executing Brokers each 
month thereafter while Historical CAT Assessment 1 is in effect.
    Proposed paragraph (a)(1)(A)(ii) would describe the invoices for 
Historical CAT Assessment 1. Proposed paragraph (a)(1)(A)(ii) would 
state that ``Consolidated Audit Trail, LLC shall provide each CAT 
Executing Broker with an invoice for Historical CAT Assessment 1 on a 
monthly basis.'' Proposed paragraph (a)(1)(A)(ii) also would describe 
the fees to be set forth in the invoices for Historical CAT Assessment 
1. Specifically, it would state that ``[e]ach month, such invoices 
shall set forth a fee for each transaction in Eligible Securities 
executed by the CAT Executing Broker in its capacity as a CAT Executing 
Broker for the Buyer (``CEBB'') and/or the CAT Executing Broker for the 
Seller (``CEBS'') (as applicable) from the prior month as set forth in 
CAT Data. The fee for each such transaction will be calculated by 
multiplying the number of executed equivalent shares in the transaction 
by the fee rate of $0.000013 per executed equivalent share.''
    Furthermore, proposed paragraph (a)(1)(A)(iii) would describe how 
long Historical CAT Assessment 1 would remain in effect. It would state 
that ``Historical CAT Assessment 1 will remain in effect until 
$212,039,879.34 (two-thirds of Historical CAT Costs 1) are collected 
from CAT Executing Brokers collectively, which is estimated to be 
approximately two years, but could be for a longer or shorter period of 
time.'' This proposed paragraph would further state that ``Consolidated 
Audit Trail, LLC will provide notice when Historical CAT Assessment 1 
will no longer be in effect.''
    Historical CAT Assessment 1 will be assessed for all transactions 
executed in each month through the end of the month in which two-thirds 
of Historical CAT Costs 1 are assessed, and then CAT

[[Page 76648]]

LLC will provide notice that Historical CAT Assessment 1 is no longer 
in effect. Since Historical CAT Assessment 1 is a monthly fee based on 
transaction volume from the prior month, Historical CAT Assessment 1 
may collect more than two-thirds of Historical CAT Costs 1. To the 
extent that occurs, any excess money collected during the final month 
in which Historical CAT Assessment 1 is in effect will be used to 
offset future fees and/or to fund the reserve for the CAT.
    Finally, proposed paragraph (a)(1)(A)(iv) sets forth the 
requirement for the CAT Executing Brokers to pay the invoices for 
Historical CAT Assessment 1. It would state that ``[e]ach CAT Executing 
Broker shall be required to pay each invoice for Historical CAT 
Assessment 1 in accordance with paragraph (a)(2) of this Rule.''
(B) Manner of Payment
    Paragraph (a)(2) of Rule 6897 (Consolidated Audit Trail Funding 
Fees) describes the manner of payment of Industry Member CAT fees. 
Paragraph (a)(2)(A) states that ``[e]ach CAT Executing Broker shall pay 
its CAT fees as required pursuant to paragraph (a)(1) of this Rule each 
month to the Consolidated Audit Trail, LLC in the manner prescribed by 
the Consolidated Audit Trail, LLC.'' The CAT NMS Plan requires the 
Operating Committee to establish a system for the collection of CAT 
fees.\93\ The Plan Processor has established a billing system for CAT 
fees.\94\ Therefore, FINRA proposes to require CAT Executing Brokers to 
pay Historical CAT Assessment 1 in accordance with such system.
---------------------------------------------------------------------------

    \93\ Section 11.4 of the CAT NMS Plan.
    \94\ The billing process and system are described in CAT Alert 
2023-02 as well as the CAT FAQs related to the billing of CAT fees, 
the Industry Member CAT Reporter Portal User Guide, the FCAT 
Industry Member Onboarding Guide, the FCAT Connectivity Supplement 
for Industry Members and the CAT Billing Webinars (dated Sept. 28, 
2023, and Nov. 7, 2023), each available on the CAT website.
---------------------------------------------------------------------------

(C) Failure To Pay CAT Fees
    The CAT NMS Plan further states that:

    Participants shall require each Industry Member to pay all 
applicable fees authorized under this Article XI within thirty (30) 
days after receipt of an invoice or other notice indicating payment 
is due (unless a longer payment period is otherwise indicated). If 
an Industry Member fails to pay any such fee when due (as determined 
in accordance with the preceding sentence), such Industry Member 
shall pay interest on the outstanding balance from such due date 
until such fee is paid at a per annum rate equal to the lesser of: 
(a) the Prime Rate plus 300 basis points; or (b) the maximum rate 
permitted by applicable law.\95\
---------------------------------------------------------------------------

    \95\ Section 11.4 of the CAT NMS Plan.

    Accordingly, FINRA previously has added this requirement to Rule 
---------------------------------------------------------------------------
6897. Paragraph (a)(2)(B) of Rule 6897 states:

    Each CAT Executing Broker shall pay the CAT fees required 
pursuant to paragraph (a)(1) of this Rule within 30 days after 
receipt of an invoice or other notice indicating payment is due 
(unless a longer payment period is otherwise indicated). If a CAT 
Executing Broker fails to pay any such CAT fee when due, such CAT 
Executing Broker shall pay interest on the outstanding balance from 
such due date until such fee is paid at a per annum rate equal to 
the lesser of (i) the Prime Rate plus 300 basis points, or (ii) the 
maximum rate permitted by applicable law.

    The requirements of paragraph (a)(2)(B) would apply to Historical 
CAT Assessment 1.
(7) Historical CAT Assessment Details
    The CAT NMS Plan states that:

    Details regarding the calculation of a CAT Executing Broker's 
Historical CAT Assessment will be provided upon request to such CAT 
Executing Broker. At a minimum, such details would include each CAT 
Executing Broker's executed equivalent share volume and 
corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity 
Securities, (2) by transactions executed on each exchange and 
transactions executed otherwise than on an exchange, and (3) by buy-
side transactions and sell-side transactions.\96\
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    \96\ Section 11.3(a)(iv)(A) of the CAT NMS Plan.

    Such information would provide CEBBs and CEBSs with the ability to 
understand the details regarding the calculation of their Historical 
CAT Assessment.\97\ CAT LLC will provide CAT Executing Brokers with 
these details regarding the calculation of their Historical CAT 
Assessments on their monthly invoice for the Historical CAT Assessment.
---------------------------------------------------------------------------

    \97\ In approving the CAT Funding Model, the Commission stated 
that, ``[i]n the Commission's view, providing CAT Execut[ing] 
Brokers information regarding the calculation of their CAT Fees will 
aid in transparency and permit CAT Execut[ing] Brokers to confirm 
the accuracy of their invoices for CAT Fees.'' See CAT Funding Model 
Approval Order, 88 FR 62628, 62667.
---------------------------------------------------------------------------

    In addition, CAT LLC will make certain aggregate statistics 
regarding Historical CAT Assessments publicly available. Specifically, 
the CAT NMS Plan states that, ``[f]or each Historical CAT Assessment, 
at a minimum, CAT LLC will make publicly available the aggregate 
executed equivalent share volume and corresponding aggregate fee by (1) 
Listed Options, NMS Stocks and OTC Equity Securities, (2) by 
transactions executed on each exchange and transactions executed 
otherwise on an exchange, and (3) by buy-side transactions and sell-
side transactions.'' \98\ Such aggregate statistics will be available 
on the CAT website. Furthermore, CAT LLC will make publicly available 
on the CAT website the total amount invoiced each month that Historical 
CAT Assessment 1 is in effect as well as the total amount invoiced for 
Historical CAT Assessment 1 for all months since its commencement. CAT 
LLC also will make publicly available on the CAT website the total 
costs to be collected from Industry Members for Historical CAT 
Assessment 1. By reviewing statistics regarding how much has been 
invoiced and how much remains to be invoiced for Historical CAT 
Assessment 1, Industry Members would have sufficient information to 
reasonably track how much longer Historical CAT Assessment 1 is likely 
to be in place.
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    \98\ Section 11.3(a)(iv)(B) of the CAT NMS Plan. In approving 
the CAT Funding Model, the Commission stated that ``[t]he 
publication of the aggregate executed equivalent share volume and 
aggregate fee is appropriate because it would allow Participants and 
CAT Executing Brokers a high-level validation of executed volume and 
fees.'' See CAT Funding Model Approval Order, 88 FR 62628, 62667.
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(8) Implementation Assistance
    To assist Industry Members with compliance with the commencement of 
Historical CAT Assessment 1, CAT LLC has been making available to CAT 
Executing Brokers mock invoices prior to the commencement of Historical 
CAT Assessment 1. Specifically, CAT Executing Brokers have received 
mock invoices based on transaction data each month since November 2023. 
The mock invoices are in the same form as the actual, payable invoices, 
including both the relevant transaction data and the corresponding fee. 
However, no payments have been required in response to such mock 
invoices; they have been used solely to assist CAT Executing Brokers 
with the development of their processes for paying the CAT fees. Such 
data has provided CAT Executing Brokers with a preview of the 
transaction data used in creating the invoices for Historical CAT 
Assessment 1 fees, as the data is the same as data provided in actual 
invoices. Such data preview is intended to facilitate the payment of 
Historical CAT Assessment 1.
(9) Financial Accountability Milestones
    The CAT NMS Plan states that ``[n]o Participant will make a filing 
with the SEC pursuant to Section 19(b) of the Exchange Act regarding 
any Historical CAT Assessment until any applicable

[[Page 76649]]

Financial Accountability Milestone described in Section 11.6 has been 
satisfied.'' \99\ The CAT NMS Plan further states that ``in all filings 
submitted by the Participants to the Commission under Section 19(b) of 
the Exchange Act, to establish or implement Post-Amendment Industry 
Member Fees pursuant to this Article, . . . the Participants shall 
clearly indicate whether such fees are related to Post-Amendment 
Expenses incurred during Period 1, Period 2, Period 3, or Period 4.'' 
\100\ As discussed in detail below, all applicable Financial 
Accountability Milestones for Historical CAT Assessment 1--that is, 
Period 1, Period 2 and Period 3 of the Financial Accountability 
Milestones--have been satisfied. Furthermore, as discussed below, this 
filing clearly indicates that Historical CAT Assessment 1 relates to 
Post-Amendment Expenses incurred during Periods 1, 2 and 3 of the 
Financial Accountability Milestones.
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    \99\ Section 11.3(b)(iii)(B)(III) of the CAT NMS Plan.
    \100\ Section 11.6(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

(A) Period 1 of the Financial Accountability Milestones
    In accordance with Section 11.6(b) of the CAT NMS Plan, Historical 
CAT Assessment 1 seeks to recover costs that are related to ``all 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 the effective 
date of [Section 11.6 of the CAT NMS Plan] until such time as Full 
Implementation of CAT NMS Plan Requirements has been achieved'' \101\ 
(``Post-Amendment Expenses'') incurred during FAM Period 1. FAM Period 
1 began on June 22, 2020, the effective date of Section 11.6 of the CAT 
NMS Plan, and concluded on July 31, 2020, the date of Initial Industry 
Member Core Equity and Options Reporting. Section 1.1 of the CAT NMS 
Plan defines ``Initial Industry Member Core Equity and Options 
Reporting'' as:
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    \101\ Section 11.6 of the CAT NMS Plan

    The reporting by Industry Members (excluding Small Industry 
Members that are not OATS reporters) of both: (a) equities 
transaction data, excluding Customer Account Information, Customer-
ID, and Customer Identifying Information; and (b) options 
transaction data, excluding Customer Account Information, Customer-
---------------------------------------------------------------------------
ID and Customer Identifying Information.''

    Under Section 1.1 of the CAT NMS Plan, this Financial 
Accountability Milestone is considered complete as of the date 
identified in the Participants' Quarterly Progress Reports.\102\ As 
indicated by the Participants' Quarterly Progress Report for the third 
quarter of 2020,\103\ Initial Industry Member Core Equity and Option 
Reporting was completed on schedule on July 22, 2020, which is prior to 
the July 31, 2020 deadline.
---------------------------------------------------------------------------

    \102\ The Quarterly Progress Reports are available at https://www.catnmsplan.com/implementation-plan.
    \103\ See CAT Q3 2020 Quarterly Progress Report (October 30, 
2020), https://catnmsplan.com/sites/default/files/2020-10/CAT-Q3-2020-QPR.pdf and Updated CAT Q3 2020 Quarterly Progress Report 
(January 29, 2021), https://catnmsplan.com/sites/default/files/2021-02/CAT-Q3-2020-QPR-Updated.pdf.
---------------------------------------------------------------------------

    Under the FAM Period 1 requirement of Initial Industry Member Core 
Equity and Options Reporting, Industry Members--excluding Small 
Industry Members that are not OATS reporters--were required to report 
two categories of data to the CAT: equities transaction data and 
options transaction data (both excluding Customer Account Information, 
Customer-ID, and Customer Identifying Information) by July 31, 2020. 
Pursuant to exemptive relief provided by the Commission, the Commission 
authorized the Participants' Compliance Rules to allow core equity 
reporting for Industry Members (Phase 2a) to begin on June 22, 2020 and 
core options reporting for Industry Members (Phase 2b) to begin on July 
20, 2020.\104\
---------------------------------------------------------------------------

    \104\ See Phased Reporting Exemptive Relief Order, supra, note 
35. Under the CAT NMS Plan as adopted, the Participants were 
required, through their Compliance Rules, to require their Large 
Industry Members to commence reporting Industry Member Data to the 
Central Repository by November 15, 2018, and to require their Small 
Industry Members to commence reporting Industry Member Data to the 
Central Repository by November 15, 2019. See Sections 6.7(a)(v) and 
(vi) of the CAT NMS Plan. The SEC granted exemptive relief from 
these provisions of the CAT NMS Plan to allow for the phased 
implementation of Industry Member reporting via five phases 
addressing the reporting requirements for Phase 2a Industry Member 
Data, Phase 2b Industry Member Data, Phase 2c Industry Member Data, 
Phase 2d Industry Member Data and Phase 2e Industry Member Data.
---------------------------------------------------------------------------

    In adopting the FAMs, the Commission stated that the equities 
transaction reporting required for FAM Period 1 ``is consistent with 
the functionality that the Participants describe on the CAT NMS Plan 
website as `Production Go-Live for Equities 2a file submission and data 
integrity validations.''' \105\ The Phase 2a Industry Member Data is 
described in detail in the SEC's Phased Reporting Exemptive Relief 
Order, and includes the following data related to Eligible Securities 
that are equities:
---------------------------------------------------------------------------

    \105\ See Securities Exchange Act Release. No. 88890 (May 15, 
2020), 85 FR 31322, 31330 n.97 (May 22, 2020) (``FAM Adopting 
Release'').
---------------------------------------------------------------------------

    <bullet> All events and scenarios covered by OATS, which includes 
information related to the receipt or origination of orders, order 
transmittal, and order modifications, cancellations and executions;
    <bullet> Reportable Events for: (1) proprietary orders, including 
market maker orders, for Eligible Securities that are equities; (2) 
electronic quotes in listed equity Eligible Securities (i.e., NMS 
stocks) sent to a national securities exchange or FINRA's Alternative 
Display Facility (``ADF''); (3) electronic quotes in unlisted Eligible 
Securities (i.e., OTC Equity Securities) received by an Industry Member 
operating an interdealer quotation system (``IDQS''); and (4) 
electronic quotes in unlisted Eligible Securities sent to an IDQS or 
other quotation system not operated by a Participant or Industry 
Member;
    <bullet> Firm Designated IDs (``FDIDs''), which Industry Members 
must report to the CAT as required by Sections 6.3(d)(i)(A) and 
6.4(d)(ii)(C) of the CAT NMS Plan;
    <bullet> Industry Members would be required to report all street 
side representative orders, including both agency and proprietary 
orders and mark such orders as representative orders, except in certain 
limited exceptions as described in the Industry Member Technical 
Specifications;
    <bullet> The link between the street side representative order and 
the order being represented when: (1) the representative order was 
originated specifically to represent a single order received either 
from a customer or another broker-dealer; and (2) there is (a) an 
existing direct electronic link in the Industry Member's system between 
the order being represented and the representative order and (b) any 
resulting executions are immediately and automatically applied to the 
represented order in the Industry Member's system;
    <bullet> Manual and Electronic Capture Time for Manual Order 
Events;
    <bullet> Special handling instructions for the original receipt or 
origination of an order during Phase 2a; and
    <bullet> When routing an order, whether the order was routed as an 
intermarket sweep order (``ISO'').
    In Phase 2a, Industry Members were not required to report 
modifications of a previously routed order in certain limited 
instances, nor were they required to report a cancellation of an order 
received from a Customer after the order has been executed.\106\
---------------------------------------------------------------------------

    \106\ See Phased Reporting Exemptive Relief Order, 85 FR 23075, 
23076-78.

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[[Page 76650]]

    The Quarterly Progress Report for the third quarter of 2020 states 
that ``Interim Step: Production Go-Live for Equities 2a file submission 
and data integrity validation (Large Industry Members and Small OATS 
Reporters)'' was completed on June 22, 2020. Accordingly, the FAM 
Period 1 requirement of reporting by Industry Members (excluding Small 
Industry Members that are not OATS reporters) of ``equities transaction 
data, excluding Customer Account Information, Customer-ID, and Customer 
Identifying Information'' was completed on June 22, 2020.
    In adopting the FAMs, the Commission stated that the options 
transaction reporting required for FAM Period 1 is ``consistent with 
the functionality that the Participants describe on the CAT NMS Plan 
website as `Production Go-Live for Options 2b file submission and data 
integrity validations.' '' \107\ The Phase 2b Industry Member Data is 
described in detail in the SEC's Phased Reporting Exemptive Relief 
Order, and includes the Industry Member Data related to Eligible 
Securities that are options and related to simple electronic option 
orders, excluding electronic paired option orders. A simple electronic 
option order is an order to buy or sell a single option that is not 
related to or dependent on any other transaction for pricing and timing 
of execution that is either received or routed electronically by an 
Industry Member. Electronic receipt of an order is defined as the 
initial receipt of an order by an Industry Member in electronic form in 
standard format directly into an order handling or execution system. 
Electronic routing of an order is the routing of an order via 
electronic medium in standard format from one Industry Member's order 
handling or execution system to an exchange or another Industry Member. 
An electronic paired option order is an electronic option order that 
contains both the buy and sell side that is routed to another Industry 
Member or exchange for crossing and/or price improvement as a single 
transaction on an exchange. Responses to auctions of simple orders and 
paired simple orders would be reportable in Phase 2b. Furthermore, 
combined orders in options would be treated in Phase 2b in the same way 
as equity representative orders are treated in Phase 2a. A combined 
order would mean, as permitted by SRO rules, a single, simple order in 
Listed Options created by combining individual, simple orders in Listed 
Options from a customer with the same exchange origin code before 
routing to an exchange. During Phase 2b, the single combined order sent 
to an exchange must be reported and marked as a combined order, but the 
linkage to the underlying orders is not required to be reported until 
Phase 2d.\108\
---------------------------------------------------------------------------

    \107\ See supra note 105 at 31322, 31330 n.98.
    \108\ See Phased Reporting Exemptive Relief Order, 85 FR 23075, 
23078.
---------------------------------------------------------------------------

    The Quarterly Progress Report for the third quarter of 2020 states 
that ``Interim Step: Production Go-Live for Options 2b file submission 
and data integrity validations'' was completed on July 20, 2020. 
Accordingly, the FAM Period 1 requirement of reporting by Industry 
Members (excluding Small Industry Members that are not OATS reporters) 
of ``options transaction data, excluding Customer Account Information, 
Customer-ID and Customer Identifying Information'' was completed on 
July 20, 2020.
    As discussed above, the Historical CAT Costs 1 to be recovered via 
Historical CAT Assessment 1 would include fees, costs and expenses 
incurred by or for the Company in connection with the development, 
implementation and operation of the CAT during the period from June 22, 
2020 through July 31, 2020. The total costs for this period, as 
discussed above, are $6,377,343. Participants would remain responsible 
for one-third of this cost (which they have previously paid), and 
Industry Members would be responsible for the remaining two-thirds, 
with CEBBs paying one-third ($2,125,781) and CEBSs paying one-third 
($2,125,781).
(B) Period 2 of the Financial Accountability Milestones
    Historical CAT Assessment 1 seeks to recover costs that are related 
to Post-Amendment Expenses incurred during FAM Period 2. FAM Period 2 
began on August 1, 2020, and concluded on December 31, 2020, the date 
of the Full Implementation of Core Equity Reporting. Section 1.1 of the 
CAT NMS Plan defines ``Full Implementation of Core Equity Reporting'' 
as:

    the point at which: (a) Industry Member reporting (excluding 
reporting by Small Industry Members that are not OATS reporters) for 
equities transactions, excluding Customer Account Information, 
Customer-ID, and Customer Identifying Information, is developed, 
tested, and implemented at a 5% Error Rate or less and with 
sufficient intra-firm linkage, inter-firm linkage, national 
securities exchange linkage, and trade reporting facilities linkage 
to permit the Participants and the Commission to analyze the full 
lifecycle of an order across the national market system, excluding 
linkage of representative orders, from order origination through 
order execution or order cancellation; and (b) the query tool 
functionality required by Section 6.10(c)(i)(A) and Appendix D, 
Sections 8.1.1-8.1.3 and Section 8.2.1 incorporates the Industry 
Member equities transaction data described in condition (a) and is 
available to the Participants and to the Commission. This Financial 
Accountability Milestone shall be considered complete as of the date 
identified in a Quarterly Progress Report meeting the requirements 
of Section 6.6(c).

    Under Section 1.1 of the CAT NMS Plan, this Financial 
Accountability Milestone is considered complete as of the date 
identified in the Participants' Quarterly Progress Reports. As 
indicated by the Participants' Quarterly Progress Report for the fourth 
quarter of 2020,\109\ Full Implementation of Core Equity Reporting was 
completed on schedule by December 31, 2020.
---------------------------------------------------------------------------

    \109\ See CAT Q4 2020 Quarterly Progress Report (January 29, 
2021), https://catnmsplan.com/sites/default/files/2021-02/CAT-Q4-2020-QPR.pdf.
---------------------------------------------------------------------------

    Specifically, the Full Implementation of Core Equity Reporting 
requires the satisfaction of two prongs. The first prong requires 
Participants to have fully implemented the first phase of equities 
transaction reporting for Industry Members (excluding Small Industry 
Members that are not OATS reporters) at an Error Rate of less than 5%. 
In addition, equities transaction data produced by the CAT at this 
stage must also be sufficiently interlinked so as to permit full 
analysis of an order's lifecycle across the national market, excluding 
full linkage of representative orders. As CAT LLC reported on its 
Quarterly Progress Reports, Phase 2a was fully implemented as of 
October 26, 2020, including intra-firm, inter-firm, national securities 
exchange, and trade reporting facilities linkages.\110\ In addition to 
the reporting of Phase 2a Industry Member Data as described above with 
regard to FAM Period 1, the following linkage data was added to the CAT 
as described in the Quarterly Progress Reports for the third and fourth 
quarter of 2020:
---------------------------------------------------------------------------

    \110\ For a description of the requirements of Phases 2a, see 
Phased Reporting Exemptive Relief Order, supra note 35.
---------------------------------------------------------------------------

    <bullet> ``Production Go-Live for Equities 2a Intrafirm Linkage 
validations'' was completed on 7/27/2020; \111\
---------------------------------------------------------------------------

    \111\ See CAT Q3 2020 Quarterly Progress Report (October 30, 
2021), https://catnmsplan.com/sites/default/files/2020-10/CAT-Q3-2020-QPR.pdf.
---------------------------------------------------------------------------

    <bullet> ``Production Go-Live for Firm to Firm Linkage validations 
for Equities 2a (Large Industry Members and Small OATS Reporters)'' was 
completed on October 26, 2020; and
    <bullet> ``Production Go-Live for Equities 2a Exchange and TRF 
Linkage validations (Large Industry Members and Small

[[Page 76651]]

OATS Reporters)'' was completed on October 26, 2020.
    Furthermore, as CAT LLC reported on its Quarterly Progress Report 
for the fourth quarter of 2020, the average overall error rate for 
Phase 2a Industry Member Data was less than 5% as of December 31, 2020. 
The average overall error rate was calculated by dividing the 
compliance errors by processed records.
    The second prong of this FAM requires that the equities transaction 
data collected by the CAT at this stage be made available to regulators 
through two basic query tools required by the CAT NMS Plan--a targeted 
query tool that will enable regulators to retrieve data via an online 
query screen with a variety of predefined selection criteria, and a 
user-defined direct query tool that will provide regulators with the 
ability to query data using all available attributes and data 
sources.\112\ As CAT LLC reported on its Quarterly Progress Reports, 
the query tool functionality incorporating the data from Phase 2a was 
available to the Participants and the Commission as of December 31, 
2020.\113\
---------------------------------------------------------------------------

    \112\ Section 6.10(c)(i)(A) of the CAT NMS Plan requires the 
Plan Processor to ``provide Participants and the SEC with access to 
all CAT Data stored in the Central Repository'' via an ``online 
targeted query tool.'' Appendix D, Sections 8.1.1-8.1.3 of the CAT 
NMS Plan describes the required functionality associated with this 
regulatory tool. Appendix D, Section 8.2.1 describes the required 
functionality associated with a user-defined direct query tool that 
will ``deliver large sets of data that can then be used in internal 
surveillance or market analysis applications.''
    \113\ See Q3 2020 Quarterly Progress Report (October 30, 2020); 
Updated Q3 2020 Quarterly Progress Report (January 29, 2021); and Q4 
2020 Quarterly Progress Report (January 29, 2021).
---------------------------------------------------------------------------

    The Commission has determined that the Participants have 
sufficiently complied with the conditions set forth in the 2020 Orders 
and with the technical requirements for Quarterly Progress Reports set 
forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining 
compliance with this FAM.\114\
---------------------------------------------------------------------------

    \114\ See Securities Exchange Act Release No. 98848 (November 2, 
2023), 88 FR 77128, 77129 n.13 (November 8, 2023) (``Settlement 
Exemptive Order'').
---------------------------------------------------------------------------

    As discussed above, Historical CAT Costs 1 to be recovered via 
Historical CAT Assessment 1 would include fees, costs and expenses 
incurred by or for the Company in connection with the development, 
implementation and operation of the CAT during the period from August 
1, 2020 through December 31, 2020. The total costs for this period, as 
discussed above, are $42,976,478. Participants would remain responsible 
for one-third of this cost (which they have previously paid), and 
Industry Members would be responsible for the remaining two-thirds, 
with CEBBs paying one-third ($14,325,492.70) and CEBSs paying one-third 
($14,325,492.70).
(C) Period 3 of the Financial Accountability Milestones
    Historical CAT Assessment 1 seeks to recover costs that are related 
to Post-Amendment Expenses incurred during FAM Period 3. FAM Period 3 
began on January 1, 2021, and concluded on December 31, 2021, the date 
of the Full Availability and Regulatory Utilization of Transactional 
Database Functionality. Section 1.1 of the CAT NMS Plan defines ``Full 
Availability and Regulatory Utilization of Transactional Database 
Functionality'' as:

    the point at which: (a) reporting to the Order Audit Trail 
System (``OATS'') is no longer required for new orders; (b) Industry 
Member reporting for equities transactions and simple electronic 
options transactions, excluding Customer Account Information, 
Customer-ID, and Customer Identifying Information, with sufficient 
intra-firm linkage, inter-firm linkage, national securities exchange 
linkage, trade reporting facilities linkage, and representative 
order linkages (including any equities allocation information 
provided in an Allocation Report) to permit the Participants and the 
Commission to analyze the full lifecycle of an order across the 
national market system, from order origination through order 
execution or order cancellation, is developed, tested, and 
implemented at a 5% Error Rate or less; (c) Industry Member 
reporting for manual options transactions and complex options 
transactions, excluding Customer Account Information, Customer-ID, 
and Customer Identifying Information, with all required linkages to 
permit the Participants and the Commission to analyze the full 
lifecycle of an order across the national market system, from order 
origination through order execution or order cancellation, including 
any options allocation information provided in an Allocation Report, 
is developed, tested, and fully implemented; (d) the query tool 
functionality required by Section 6.10(c)(i)(A) and Appendix D, 
Sections 8.1.1-8.1.3, Section 8.2.1, and Section 8.5 incorporates 
the data described in conditions (b)-(c) and is available to the 
Participants and to the Commission; and (e) the requirements of 
Section 6.10(a) are met. This Financial Accountability Milestone 
shall be considered complete as of the date identified in a 
Quarterly Progress Report meeting the requirements of Section 
6.6(c).

    Under Section 1.1 of the CAT NMS Plan, this Financial 
Accountability Milestone is considered complete as of the date 
identified in the Participants' Quarterly Progress Reports. As 
indicated by the Participants' Quarterly Progress Report for the fourth 
quarter of 2021,\115\ Full Availability and Regulatory Utilization of 
Transactional Database Functionality was completed on schedule by 
December 31, 2021.
---------------------------------------------------------------------------

    \115\ See CAT Q4 2021 Quarterly Progress Report (January 27, 
2022), https://catnmsplan.com/sites/default/files/2022-01/CAT-Q4-2021-QPR.pdf.
---------------------------------------------------------------------------

    Specifically, the ``Full Availability and Regulatory Utilization of 
Transactional Database Functionality'' requires the satisfaction of 
five prongs. The first prong requires that reporting to OATS is no 
longer required for new orders. As CAT LLC reported on its Quarterly 
Progress Report for the fourth quarter of 2021,\116\ FINRA retired OATS 
effective September 1, 2021.\117\ Accordingly, after the retirement of 
OATS, reporting to OATS was no longer required.
---------------------------------------------------------------------------

    \116\ See supra note 115.
    \117\ See Securities Exchange Act Release No. 92239 (June 23, 
2021), 86 FR 34293 (June 29, 2021) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2021-017).
---------------------------------------------------------------------------

    In addition to Phase 2a and Phase 2b Industry Member Data, the 
second and third prongs of ``Full Availability and Regulatory 
Utilization of Transactional Database Functionality'' require Industry 
Member reporting of Phase 2c Industry Member Data and Phase 2d Industry 
Member Data. The Phase 2c Industry Member Data is described in detail 
in the SEC's Phased Reporting Exemptive Relief Order. That Order states 
that ``Phase 2c Industry Member Data'' is Industry Member Data related 
to Eligible Securities that are equities other than Phase 2a Industry 
Member Data, Phase 2d Industry Member Data, or Phase 2e Industry Member 
Data. Specifically, the Phase 2c Industry Member Data includes Industry 
Member Data that is related to Eligible Securities that are equities 
and that is related to: (1) Allocation Reports as required to be 
recorded and reported to the Central Repository pursuant to Section 
6.4(d)(ii)(A)(1) of the CAT NMS Plan; (2) quotes in unlisted Eligible 
Securities sent to an IDQS operated by a CAT Reporter (reportable by 
the Industry Member sending the quotes) (except for quotes reportable 
in Phase 2d, as discussed below); (3) electronic quotes in listed 
equity Eligible Securities (i.e., NMS stocks) that are not sent to a 
national securities exchange or FINRA's Alternative Display Facility; 
(4) reporting changes to client instructions regarding modifications to 
algorithms; (5) marking as a representative order any order originated 
to work a customer order in price guarantee scenarios, such as a 
guaranteed VWAP; (6) flagging rejected external routes to indicate a 
route was not accepted by the receiving destination; (7) linkage of 
duplicate electronic messages related to a Manual Order Event between 
the electronic

[[Page 76652]]

event and the original manual route; (8) special handling instructions 
on order route reports (other than the ISO, which is required to be 
reported in Phase 2a); (9) quote identifier on trade events; (10) 
reporting of LTIDs (if applicable) for accounts with Reportable Events 
that are reportable to CAT as of and including Phase 2c; (11) reporting 
of date account opened or Account Effective Date (as applicable) for 
accounts and reporting of a flag indicating the Firm Designated ID type 
as account or relationship; (12) order effective time for orders that 
are received by an Industry Member and do not become effective until a 
later time; (13) the modification or cancellation of an internal route 
of an order; and (14) linkages to the customer orders(s) being 
represented for representative order scenarios, including agency 
average price trades, net trades, aggregated orders, and disconnected 
Order Management System (``OMS'')--Execution Management System 
(``EMS'') scenarios, as required in the Industry Member Technical 
Specifications.\118\
---------------------------------------------------------------------------

    \118\ See Phase Reporting Exemptive Relief Order, 85 FR 23075, 
23078-79.
---------------------------------------------------------------------------

    Phase 2c Industry Member Data also includes electronic quotes that 
are provided by or received in a CAT Reporter's order/quote handling or 
execution systems in Eligible Securities that are equities and are 
provided by an Industry Member to other market participants off a 
national securities exchange under the following conditions: (1) an 
equity bid or offer is displayed publicly or has been communicated (a) 
for listed securities to the ADF operated by FINRA; or (b) for unlisted 
equity securities to an ``interdealer quotation system,'' as defined in 
FINRA Rule 6420(c); or (2) an equity bid or offer which is accessible 
electronically by customers or other market participants and is 
immediately actionable for execution or routing; i.e., no further 
manual or electronic action is required by the responder providing the 
quote in order to execute or cause a trade to be executed). With 
respect to OTC Equity Securities, OTC Equity Securities quotes sent by 
an Industry Member to an IDQS operated by an Industry Member CAT 
Reporter (other than such an IDQS that does not match and execute 
orders) are reportable by the Industry Member sending them in Phase 2c. 
Accordingly, any response to a request for quote or other form of 
solicitation response provided in a standard electronic format (e.g., 
FIX) that meets this quote definition (i.e., an equity bid or offer 
which is accessible electronically by customers or other market 
participants and is immediately actionable for execution or routing) 
would be reportable in Phase 2c.\119\
---------------------------------------------------------------------------

    \119\ See supra note 118, at 23079.
---------------------------------------------------------------------------

    The Phase 2d Industry Member Data is described in detail in the 
SEC's Phased Reporting Exemptive Relief Order. ``Phase 2d Industry 
Member Data'' is Industry Member Data that is related to Eligible 
Securities that are options other than Phase 2b Industry Member Data, 
Industry Member Data that is related to Eligible Securities that are 
equities other than Phase 2a Industry Member Data or Phase 2c Industry 
Member Data, and Industry Member Data other than Phase 2e Industry 
Member Data. Phase 2d Industry Member Data includes with respect to the 
Eligible Securities that are options: (1) simple manual orders; (2) 
electronic and manual paired orders; (3) all complex orders with 
linkages to all CAT-reportable legs; (4) LTIDs (if applicable) for 
accounts with Reportable Events for Phase 2d; (5) date account opened 
or Account Effective Date (as applicable) for accounts with an LTID and 
flag indicating the Firm Designated ID type as account or relationship 
for such accounts; (6) Allocation Reports as required to be recorded 
and reported to the Central Repository pursuant to Section 
6.4(d)(ii)(A)(1) of the CAT NMS Plan; (7) the modification or 
cancellation of an internal route of an order; and (8) linkage between 
a combined order and the original customer orders. Phase 2d Industry 
Member Data also would include electronic quotes that are provided by 
or received in a CAT Reporter's order/quote handling or execution 
systems in Eligible Securities that are options and are provided by an 
Industry Member to other market participants off a national securities 
exchange under the following conditions: a listed option bid or offer 
which is accessible electronically by customers or other market 
participants and is immediately actionable (i.e., no further action is 
required by the responder providing the quote in order to execute or 
cause a trade to be executed). Accordingly, any response to a request 
for quote or other form of solicitation response provided in standard 
electronic format (e.g., FIX) that meets this definition is reportable 
in Phase 2d for options.\120\
---------------------------------------------------------------------------

    \120\ See supra note 118.
---------------------------------------------------------------------------

    Phase 2d Industry Member Data also includes with respect to 
Eligible Securities that are options or equities (1) receipt time of 
cancellation and modification instructions through Order Cancel Request 
and Order Modification Request events; (2) modifications of previously 
routed orders in certain instances; and (3) OTC Equity Securities 
quotes sent by an Industry Member to an IDQS operated by an Industry 
Member CAT Reporter that does not match and execute orders. In 
addition, subject to any exemptive or other relief, Phase 2d Industry 
Member Data will include verbal or manual quotes on an exchange floor 
or in the over-the-counter market, where verbal quotes and manual 
quotes are defined as bids or offers in Eligible Securities provided 
verbally or that are provided or received other than via a CAT 
Reporter's order handling and execution system (e.g., quotations 
provided via email or instant messaging).\121\
---------------------------------------------------------------------------

    \121\ See supra note 118, at 23079-80.
---------------------------------------------------------------------------

    The Quarterly Progress Report for the fourth quarter of 2021 states 
that ``Phase 2a was fully implemented as of October 26, 2020;'' ``Phase 
2b was fully implemented as of January 4, 2021;'' ``Phase 2c was 
implemented as of April 26, 2021;'' and ``Phase 2d was fully 
implemented as of December 13, 2021.'' \122\ The Quarterly Progress 
Reports for 2021 provide additional detail regarding the implementation 
of these steps including the following:
---------------------------------------------------------------------------

    \122\ See CAT Q4 2021 Quarterly Progress Report (January 27, 
2022), https://catnmsplan.com/sites/default/files/2022-01/CAT-Q4-2021-QPR.pdf.
---------------------------------------------------------------------------

    <bullet> ``Production Go-Live for Equities 2c reporting 
requirements (Large Industry Members)'' was completed on April 26, 
2021;
    <bullet> ``LTID Account Information Reporting Go-Live for Phases 
2a, 2b and 2c (Large Industry Members)'' was completed on April 26, 
2021;
    <bullet> ``FCAT Plan Processor creates linkages of the lifecycle of 
order events based on the received data through Phase 2d Production Go-
Live for Options 2d reporting requirements (Large Industry Members)'' 
was completed on December 13, 2021;
    <bullet> ``Production Go-Live for Options 2d reporting requirements 
(Large Industry Members)'' was completed on December 13, 2021;
    <bullet> ``Production Go-Live for Options 2b reporting requirements 
(Small OATS Reporters and Small Non-OATS Reporters)'' was completed on 
December 13, 2021;
    <bullet> ``Production Go-Live for Equities 2c reporting 
requirements (Small OATS Reporters and Small Non-OATS Reporters)'' was 
completed on December 13, 2021;
    <bullet> ``Production Go-Live for Options 2d reporting requirements 
(Small OATS Reporters and Small Non-OATS Reporters)'' was completed on 
December 13, 2021;

[[Page 76653]]

    <bullet> ``LTID Account Information Reporting Go-Live for Phases 2d 
(Large Industry Members)'' was completed on December 13, 2021; and
    <bullet> ``LTID Account Information Reporting Go-Live for Phases 
2a, 2b, 2c and 2d (Small Industry Members)'' was completed on December 
13, 2021.\123\
---------------------------------------------------------------------------

    \123\ See CAT Q2 2021 Quarterly Progress Report (July 27, 2021), 
https://catnmsplan.com/sites/default/files/2021-07/CAT-Q2-2021-QPR.pdf; and CAT Q4 2021 Quarterly Progress Report (Jan. 27, 2022), 
https://catnmsplan.com/sites/default/files/2022-01/CAT-Q4-2021-QPR.pdf.
---------------------------------------------------------------------------

    The third prong of ``Full Availability and Regulatory Utilization 
of Transactional Database Functionality'' also imposes an Error Rate 
requirement of 5% or less. The Quarterly Progress Report for the fourth 
quarter of 2021 states the average overall error rate was less than 5% 
as of December 31, 2021. The average overall error rate was calculated 
by dividing the compliance errors by processed records.
    The fourth prong of ``Full Availability and Regulatory Utilization 
of Transactional Database Functionality'' requires that the data 
collected by the CAT at this stage be made available to regulators 
through an online targeted query tool, and a user-defined direct query 
tool. As CAT LLC reported on its Quarterly Progress Report for the 
fourth quarter of 2021, the query tool functionality incorporating the 
data from Phases 2a, 2b, 2c and 2d was available to the Participants 
and to the Commission as of December 31, 2021.\124\
---------------------------------------------------------------------------

    \124\ See CAT Q4 2021 Quarterly Progress Report (Jan. 27, 2022), 
https://catnmsplan.com/sites/default/files/2022-01/CAT-Q4-2021-QPR.pdf.
---------------------------------------------------------------------------

    The fifth prong requires the requirements of Section 6.10(a) of the 
CAT NMS Plan to have been met. Section 6.10(a) of the CAT NMS Plan 
requires the Participants to use the tools described in Appendix D to 
``develop and implement a surveillance system, or enhance existing 
surveillance systems, reasonably designed to make use of the 
consolidated information contained in the Central Repository.'' FINRA 
implemented a surveillance system, or enhanced existing surveillance 
systems, reasonably designed to make use of the consolidated 
information contained in the Central Repository as of December 31, 2021 
in accordance with Section 6.10(a) of the CAT NMS Plan.\125\
---------------------------------------------------------------------------

    \125\ See Q1 2021 Quarterly Progress Report (Apr 30, 2021); Q2 
2021 Quarterly Progress Report (July 27, 2021); Q3 2021 Quarterly 
Progress Report (November 1, 2021); Q4 2021 Quarterly Progress 
Report (January 27, 2022).
---------------------------------------------------------------------------

    The Commission has determined that the Participants have 
sufficiently complied with the conditions set forth in the 2020 Orders 
and with the technical requirements for Quarterly Progress Reports set 
forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining 
compliance with this FAM.\126\
---------------------------------------------------------------------------

    \126\ See Settlement Exemptive Order, 88 FR 77128, 77129 n.13.
---------------------------------------------------------------------------

    As discussed above, Historical CAT Costs 1 to be recovered via 
Historical CAT Assessment 1 would include fees, costs and expenses 
incurred by or for the Company in connection with the development, 
implementation and operation of the CAT during the period from January 
1, 2021 through December 31, 2021. The total costs for this period, as 
discussed above, are $144,415,268. Participants would remain 
responsible for one-third of this cost (which they have previously 
paid), and Industry Members would be responsible for the remaining two-
thirds, with CEBBs paying one-third ($48,138,422.70) and CEBSs paying 
one-third ($48,138,422.70).
(D) Additional Considerations Related to the Financial Accountability 
Milestones
    As discussed above, CAT LLC has satisfied the Financial 
Accountability Milestones (``FAMs'') for Periods 1 through 3.\127\ As 
discussed below, none of the circumstances related to NIA Electronic 
RFQ Responses, the 2023 Verbal Quotes Exemption, the November 2023 
Order, or Executing Broker reporting, affect the conclusion that the 
FAMs for Periods 1 through 3 were satisfied in a timely fashion.
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    \127\ In May 2020, the Commission adopted amendments to the CAT 
NMS Plan that establish four Financial Accountability Milestones and 
set target deadlines by which these milestones must be achieved. 
These amendments also reduce the amount of any fees, costs, and 
expenses that may be recovered from Industry Members if the 
Participants fail to meet the target deadlines. See FAM Adopting 
Release.
---------------------------------------------------------------------------

(i) NIA Electronic RFQ Responses
    CAT LLC does not believe that the exemptive relief relating to the 
reporting of electronic responses for quotes (``RFQs'') that are not 
immediately actionable (``NIA Electronic RFQ Responses'') affect the 
conclusion that FAMs 1 through 3 have been satisfied. The only reason 
CAT LLC pursued this relief is because certain Industry Members 
introduced concerns that NIA Electronic RFQ Responses could be 
considered ``orders'' reportable pursuant to Rule 613(j)(8) and some 
Industry Members were not prepared to report such orders to CAT. Thus, 
the relief was requested on behalf of Industry Members. CAT LLC itself 
has not taken any position on whether NIA Electronic RFQ Responses are 
``orders,'' as the definition of ``order'' is an SEC rule and the 
trading processes for NIA Electronic RFQ Responses are the Industry 
Members', not those of the Participants or CAT LLC. Accordingly, CAT 
LLC stated in its letter that ``Industry Members must determine whether 
trading interest falls within the definition of an `order' for CAT 
purposes. To the extent an NIA Electronic RFQ Response is not 
considered an `order'' as defined in Rule 613(j)(8) and the CAT NMS 
Plan, it would not be reportable to CAT.'' \128\
---------------------------------------------------------------------------

    \128\ See Letter from Brandon Becker, Chair, CAT NMS Plan 
Operating Committee, to Vanessa Countryman, Secretary, SEC, dated 
February 13, 2024, at 2.
---------------------------------------------------------------------------

    Only ``orders'' as defined in SEC Rule 613(j)(8) are reportable to 
CAT. There is no agreement across the industry or among regulators as 
to whether NIA Electronic RFQ Responses are ``orders'' reportable to 
CAT. Certain Industry Members have raised the question as to whether 
NIA Electronic RFQ Responses are orders, but others have argued that 
they are not orders under Rule 613(j)(8).\129\ Indeed, members of the 
Advisory Committee, which CAT LLC relies upon for guidance with regard 
to Industry Member issues, have not had a definitive view on whether 
NIA Electronic RFQ Responses are orders. As Rule 613(j)(8) is an SEC 
rule, CAT LLC believes that only the SEC can provide a definitive 
determination as to if, and under what circumstances, an NIA Electronic 
RFQ Response is considered an ``order'' reportable to CAT. The issue 
has persisted for some time. As a result, CAT LLC filed an exemptive 
request regarding NIA Electronic RFQ Responses for clarity on the 
interpretive issue. As recently as April 2024, Industry Members have 
re-raised this issue stating that the SEC agrees that it must provide 
additional guidance on this interpretive issue to resolve the CAT 
reporting issue for NIA Electronic RFQ Responses:
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    \129\ See, e.g., Letter from Howard Meyerson, Managing Director, 
FIF, to Sai Rao, Counsel for Trading and Markets, Office of the 
Chair, SEC, dated April 25, 2024.

    As further discussed in the prior FIF letters, even if the 
Commission had the legal authority to require the reporting of NIA 
RFQ responses to CAT without an amendment to Rule 613, the 
Commission has not provided guidance to industry members as to the 
conditions under which NIA RFQ responses would be reportable to CAT. 
In subsequent discussions with industry members, Commission 
representatives have agreed that, prior to NIA RFQ responses being 
reportable to CAT, it would be necessary for the Commission to 
provide further guidance to industry members as to the conditions 
under

[[Page 76654]]

which NIA RFQ responses would be reportable to CAT.\130\
---------------------------------------------------------------------------

    \130\ See supra note 129.

    On May 20, 2024, the Commission granted CAT LLC's request for 
exemptive relief from certain CAT reporting requirements pertaining to 
NIA Electronic RFQ Responses to the extent such responses are 
considered ``orders'' reportable pursuant to Rule 613(j)(8).\131\ The 
Commission, however, did not provide additional guidance regarding the 
conditions under which NIA Electronic RFQ Responses would be reportable 
to CAT. The Commission stated in its exemptive order that ``[t]o the 
extent that the Participants are availing themselves of exemptive 
relief from a CAT NMS Plan requirement, such requirement shall not be 
included in the requirements for the Financial Accountability 
Milestones, provided that any conditions of the exemption are 
satisfied.'' \132\
---------------------------------------------------------------------------

    \131\ Securities Exchange Act Release No. 100181 (May 20, 2024), 
89 FR 45715 (May 23, 2024).
    \132\ See supra note 131, 89 FR 45715, 45716 n.11.
---------------------------------------------------------------------------

    When the Commission proposed the FAMs, the Participants expressed 
concern that, ``by conditioning the ability of CAT LLC and the 
Participants to collect Post-Amendment Industry Member Fees on factors 
dependent on the efforts of Industry Members, the Commission's 
proposals inadvertently establish a perverse incentive for Industry 
Members to devote less than maximum efforts to comply with their 
obligations related to the CAT as they will pay less fees in such 
instances.'' \133\ The Participants further warned that ``Industry 
Members may request or require unanticipated reporting delays to 
address Industry Member implementation issues or concerns,'' but that, 
``[f]aced with financial penalties for missed deadlines, the 
Participants may not be able to fully address legitimate industry 
concerns or accommodate requests for delays with respect to future 
deadlines.'' \134\ CAT LLC has engaged in good faith to help address 
NIA Electronic RFQ Responses and other concerns relevant to the ability 
of Industry Members to meet their CAT reporting obligations. CAT LLC 
should not be penalized financially for seeking in good faith to 
resolve a difficult interpretive issue for the benefit of Industry 
Members.
---------------------------------------------------------------------------

    \133\ See Letter from Michael Simon, CAT NMS Plan Operating 
Committee Chair, to Vanessa Countryman, Secretary, SEC, dated 
October 28, 2019, at 9.
    \134\ See supra note 133 at 10.
---------------------------------------------------------------------------

(ii) 2023 Verbal Quotes Exemption
    CAT LLC does not believe that the Commission's May 19, 2023 order 
granting temporary exemptive relief relating to certain verbal floor 
activity and unstructured verbal and electronic upstairs activity (the 
``2023 Verbal Quotes Exemption'') affects the conclusion that FAMs 1 
through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which 
was issued on May 19, 2023, is not relevant for purposes of FAM Periods 
1 through 3, which only cover the period through December 31, 2021. The 
relevant exemption for this time period is the Commission's November 
12, 2020 order, which granted relief for the same activity through July 
31, 2023 (the ``2020 Verbal Quotes Order'').\135\ The Commission has 
stated that, ``[t]o the extent that the Participants are availing 
themselves of exemptive relief from a CAT NMS Plan requirement, such 
requirement shall not be included in the requirements for a Financial 
Accountability Milestone, provided that the conditions of the exemption 
are satisfied.'' \136\ Here, the 2020 Verbal Quotes Order was in effect 
and the conditions of the exemption were satisfied as of December 31, 
2021, and therefore may be relied upon for purposes of determining 
compliance with FAM Periods 1 through 3.\137\
---------------------------------------------------------------------------

    \135\ See Securities Exchange Act Release No. 90405 (November 
12, 2020), 85 FR 73544 (November 18, 2020) (the ``2020 Verbal Quotes 
Exemption'').
    \136\ See, e.g., Securities Exchange Act Release No. 89051 (June 
11, 2020), 85 FR 36631, 36633 (June 17, 2020). The straightforward 
reading of the Commission's statement is that compliance with the 
conditions of an exemption will be measured as of the deadline for a 
particular FAM Period.
    \137\ As a condition to the 2020 Verbal Quotes Exemption, the 
Commission required that the Participants provide a written status 
update on the reporting of these quotes and orders by July 31, 2022, 
including the estimated costs of reporting these quotes and orders 
and an implementation plan for the reporting of these quotes and 
orders. As noted, the 2020 Verbal Quotes Order was in effect and the 
conditions of the exemption were satisfied as of December 31, 2021, 
and therefore may be relied upon for purposes of determining 
compliance with FAM Periods 1 through 3. In any event, on June 3, 
2022, the Participants provided the required written status update. 
See Letter from Michael Simon, CAT NMS Plan Operating Committee 
Chair, to Vanessa Countryman, Secretary, SEC, dated June 3, 2022.
---------------------------------------------------------------------------

(iii) November 2023 Order
    CAT LLC does not believe that the Commission's November 2, 2023 
order granting relief from certain CAT NMS Plan requirements (the 
``November 2023 Order'') \138\ affects the conclusion that FAMs 1 
through 3 have been satisfied. The November 2023 Order is not relevant 
for purposes of FAM Periods 1 through 3, which only cover the period 
through December 31, 2021. As described in the November 2023 Order, the 
relevant exemptive orders for this time period were issued on December 
16, 2020, which also states that ``the Commission has determined that 
the Participants have sufficiently complied with the conditions set 
forth in the prior Orders and with the technical requirements for 
Quarterly Progress Reports set forth in section 6.6(c) of the CAT NMS 
Plan, including for purposes of determining compliance with any 
applicable Financial Accountability Milestones.'' \139\ The November 
2023 Exemption Order is consistent with the Commission's repeated 
statements in the FAM adopting release that it would have ``authority 
to grant exemptive relief from any requirement associated with a 
particular Financial Accountability Milestone,'' citing Section 36 of 
the Exchange Act and Rule 608.\140\ Similarly, the CAT NMS Plan 
expressly contemplates the
---------------------------------------------------------------------------

    \138\ See Securities Exchange Act Release No. 98848 (November 2, 
2023), 88 FR 77128 (November 8, 2023) (the ``November 2023 Order'').
    \139\ See November 2023 Order, 88 FR 77128, 77129 n.13.
    \140\ See FAM Adopting Release at 31335 (May 22, 2020). Section 
36 of the Exchange Act grants the Commission the authority to 
``conditionally or unconditionally exempt any person, security, or 
transaction . . . from any provision or provisions of [the Exchange 
Act] or of any rule or regulation thereunder, to the extent that 
such exemption is necessary or appropriate in the public interest, 
and is consistent with the protection of investors.'' 15 U.S.C. 
78mm(a)(1). Under Rule 608(e) of Regulation NMS, the Commission may 
``exempt from [Rule 608], either unconditionally or on specified 
terms and conditions, any self-regulatory organization, member 
thereof, or specified security, if the Commission determines that 
such exemption is consistent with the public interest, the 
protection of investors, the maintenance of fair and orderly markets 
and the removal of impediments to, and perfection of the mechanism 
of, a national market system.'' 17 CFR 242.608(e).
---------------------------------------------------------------------------

    Commission's ability to grant exemptive relief from any CAT NMS 
Plan requirement.\141\
---------------------------------------------------------------------------

    \141\ Section 12.3 of the CAT NMS Plan (``[T]o the extent the 
SEC grants exemptive relief applicable to any provision of this 
Agreement, Participants and Industry Members shall be entitled to 
comply with such provision pursuant to the terms of the exemptive 
relief so granted at the time such relief is granted irrespective of 
whether this Agreement has been amended.'')
---------------------------------------------------------------------------

(iv) Executing Broker Reporting
    CAT LLC also completed the requirements of FAM Period 2, including 
the required linkages, by December 31, 2020. Although Participant 
exchanges may report the Executing Broker to CAT differently in certain 
situations, these reporting differences are irrelevant for linkage 
purposes as the fields used for CAT Executing Broker are not used for 
linkage.

[[Page 76655]]

(10) Additional Support for Reasonableness of Historical CAT Costs
    The CAT Funding Model approved by the Commission permits the 
recovery of reasonable costs in each of the categories of CAT costs 
sought to be recovered via Historical CAT Assessment 1.\142\ As 
described in detail above and in further detail below, the CAT costs to 
be recovered for each category are reasonable. The following discusses 
in further detail how each of the following costs are reasonable: (1) 
costs incurred prior to the effective date of the CAT NMS Plan; (2) 
cloud hosting services costs; (3) costs related to funding model 
filings; (4) costs related to litigation with the SEC regarding the CAT 
NMS Plan; (5) costs related to the Initial Plan Processor; (6) CAIS 
implementation costs; (7) public relations costs; (8) legal costs 
related to the limitation of liability provision in the CAT Reporter 
agreements; and (9) costs for the Chair of CAT Operating Committee. As 
discussed in detail below, each of these costs is reasonable and should 
be recoverable in accordance with the CAT Funding Model.
---------------------------------------------------------------------------

    \142\ See Sections 11.1(a)(i) and 11.3(b)(iii)(B)(II) of the CAT 
NMS Plan.
---------------------------------------------------------------------------

(A) Costs Incurred Prior to the Effective Date of CAT NMS Plan
    CAT LLC believes that it is reasonable to seek recovery of costs 
incurred prior to when the CAT NMS Plan became effective in November 
2016, such as legal and consulting fees incurred to create the CAT NMS 
Plan. Rule 613 specifically mandates that the CAT be created, 
implemented and maintained, and further provides that the CAT NMS Plan 
include a proposed allocation of estimated costs to fund the creation, 
implementation and maintenance of the CAT among the Participants 
(referred to as ``plan sponsors''), and between the Participants and 
Industry Members (referred to as ``members of the plan 
sponsors'').\143\ Consistent with Rule 613, the CAT NMS Plan, as 
approved by the Commission, specifically authorizes charging Industry 
Members fees for costs reasonably incurred prior to the date of the 
approval of the CAT NMS Plan by the Commission in November 2016, 
including legal and consulting costs. Section 11.1(c) of the CAT NMS 
Plan states that:
---------------------------------------------------------------------------

    \143\ See, e.g., Rule 613(a)(1)(vii)(D) of SEC Regulation NMS.

    [i]n determining fees on Participants and Industry Members the 
Operating Committee shall take into account fees, costs and expenses 
(including legal and consulting fees and expenses) reasonably 
incurred by Participants on behalf of the Company prior to the 
Effective Date in connection with the creation and implementation of 
---------------------------------------------------------------------------
the CAT.

    Accordingly, the CAT NMS Plan specifically permits the recovery of 
costs, including legal and consulting costs, reasonably incurred prior 
to November 2016 in connection with the creation and implementation of 
the CAT.
    Furthermore, the costs incurred to create and implement the CAT 
prior to the effective date of the CAT NMS Plan (``Pre-Formation 
Costs'') were reasonable both in scope and amount, in accordance with 
the requirements of Section 11.1(c) of the CAT NMS Plan. During the 
four-year period from 2012 to 2016, a total of $13,842,881 in Pre-
Formation Costs were incurred. This is an average of approximately $3.5 
million per year over this period. The Pre-Formation Costs fell into 
three categories: legal costs, consulting costs and public relations 
costs. This includes legal costs of $3,196,434; consulting costs of 
$10,589,273; and public relations costs of $57,174. The legal, 
consulting and public relations services were performed by WilmerHale, 
Deloitte and Peppercomm, respectively. The selection considerations and 
fees for these three firms are described in detail above and are 
described further below. The Pre-Formation Costs are direct costs of 
CAT, which have been funded entirely by the Participants through non-
interest-bearing notes. The Pre-Formation Costs do not include the 
significant costs incurred by each of the individual Participants in 
responding to the adoption of Rule 613.
    The Pre-Formation Costs are reasonable and appropriate as they 
reflect the extensive efforts that were necessary to create the CAT NMS 
Plan as mandated after the SEC's adoption of Rule 613. As described in 
more detail below, these efforts included, among other things, 
developing a plan for selecting the Plan Processor, soliciting and 
evaluating bids, engaging a diverse set of market participants and the 
SEC in the development of the Plan, interacting with the SEC in their 
oversight of the development of the Plan, and seeking appropriate 
exemptive relief to address areas of concern in Rule 613.\144\
---------------------------------------------------------------------------

    \144\ The Participants described in detail the process for 
drafting the CAT NMS Plan in its original filing of the CAT NMS 
Plan. See Letter from Mike Simon, on behalf of the Participants of 
the CAT NMS Plan, to Brent J. Fields, Secretary, SEC, dated 
September 30, 2014. A non-exclusive list of filings and activities 
associated with CAT, including certain pre-2016 filings, are 
available on the SEC's website: https://www.sec.gov/divisions/marketreg/rule613-info.
---------------------------------------------------------------------------

(i) Request for Proposal (``RFP'')
    The Participants determined to utilize an RFP to ensure that 
potential alternative solutions for creating the Plan could be 
presented and considered, and that a detailed and meaningful cost-
benefit analysis could be performed. The SEC supported the use of an 
RFP, and approved its use as it is described in extensive detail in the 
CAT NMS Plan.\145\
---------------------------------------------------------------------------

    \145\ See detailed discussion of RFP questions in Appendix C of 
the CAT NMS Plan, and incorporation of RFP requirements in Appendix 
D at D-2.
---------------------------------------------------------------------------

    In the context of the SEC's adoption of Rule 613, commenters urged 
the Commission to utilize an RFP process to assist in the planning and 
design of the NMS plan.\146\ Specifically, the Commission explained:
---------------------------------------------------------------------------

    \146\ For example, in its comments on proposed Rule 613, FIF 
suggested ``that the SROs should select the processor through a 
`request for proposal.' '' See Rule 613 Adopting Release at 45785.

    In this regard, several commenters suggested that the Commission 
undergo a RFP or request for information (``RFI'') process to create 
and implement a consolidated audit trail. Specifically, FIF urged 
the Commission to perform a RFP process ``to determine the best 
technical solution for developing a consolidated audit trail.'' FIF 
suggested that the Commission ``should outline a set of goals and 
guiding principles they are striving to achieve as part of the 
adopted CAT filing and leave the determination of data elements and 
other technical requirements to [an] industry working group.'' 
Similarly, Direct Edge suggested that Commission staff should form 
and engage in a working group to develop an RFP for publication by 
the Commission. DirectEdge explained that an RFP process would 
facilitate the identification of the costs and benefits of the audit 
trail, as well as the consideration of a wider range of 
technological solutions. Further, commenters, including Broadridge 
Financial Solutions, Inc., a technology provider, also requested 
more specific information about the audit trail system to better 
assess the Commission's initial cost estimates and to determine the 
best approach to the consolidated audit trail.\147\
---------------------------------------------------------------------------

    \147\ See Rule 613 Adopting Release, 77 FR 45722, 45738-39.

    In response to these comments, the Commission modified Rule 613 to 
require the Participants to address certain important considerations 
regarding the features and details of the NMS plan and to extend the 
timeframe for submission of the CAT NMS Plan by the Participants from 
the 90 days as originally proposed to 270 days, in part, to accommodate 
a process that would address these considerations.\148\ As the

[[Page 76656]]

SEC noted, ``[i]n light of the numerous specific requirements of Rule 
613, the Participants concluded that publication of a request for 
proposal (`RFP') was necessary to ensure that potential alternative 
solutions to creating the consolidated audit trail can be presented and 
considered by the Participants and that a detailed and meaningful cost/
benefit analysis can be performed, both of which are required 
considerations to be addressed in the CAT NMS Plan.'' \149\
---------------------------------------------------------------------------

    \148\ See Rule 613 Adopting Release, 77 FR 45722, 45739.
    \149\ See Securities Exchange Act Release No. 71596 (February 
21, 2014), 79 FR 11152, 11152 (February 27, 2014) (``Selection Plan 
Approval Order'')
---------------------------------------------------------------------------

    The SEC specifically recognized that the Participants planned to 
use an RFP when it approved the Selection Plan, and stated that the RFP 
was a reasonable approach.\150\ As the SEC described in its approval 
order for the Selection Plan, ``[t]he Participants filed the 
[Selection] Plan to govern how the SROs will proceed with formulating 
and submitting the CAT NMS Plan--and, as part of that process, how to 
review, evaluate, and narrow down the bids submitted in response to the 
RFP (`Bids')--and ultimately choosing the plan processor that will 
build, operate, and maintain the consolidated audit trail (`Plan 
Processor').'' \151\ After evaluating the Selection Plan, including the 
use of an RFP process, the Commission stated that it ``believes the 
[Selection] Plan is reasonably designed to govern the process by which 
the SROs will formulate and submit the CAT NMS Plan, including the 
review, evaluation, and narrowing down of Bids in response to the RFP, 
and ultimately choosing the Plan Processor that will build, operate, 
and maintain the consolidated audit trail.'' \152\ On February 26, 
2013, the Participants published an RFP soliciting bids from parties 
interested in serving as the plan processor for the CAT. Initially, 31 
firms submitted intentions to bid. In the following months, the 
Participants engaged with potential bidders with respect to, among 
other things, the selection process, selection criteria, and potential 
bidders' questions and concerns. On March 21, 2014, the Participants 
received ten bids in response to the RFP.
---------------------------------------------------------------------------

    \150\ See supra note 149.
    \151\ See Selection Plan Approval Order, 79 FR 11152, 11153.
    \152\ See Selection Plan Approval Order, 79 FR 11152, 11159.
---------------------------------------------------------------------------

(ii) Selection Plan
    On September 4, 2013, the Participants filed with the Commission a 
national market system plan to govern the process for Participant 
review of the bids submitted in response to the RFP, the procedures for 
evaluating the bids, and, ultimately, selection of the plan processor 
(the ``Selection Plan'').\153\ The Commission approved the Selection 
Plan as filed on February 21, 2014.\154\ In approving the Selection 
Plan, the Commission concluded that ``it is reasonably designed to 
achieve its objective of facilitating the development of the CAT NMS 
Plan and the selection of the Plan Processor.'' \155\
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    \153\ See Securities Exchange Act Release No. 70892 (November 
15, 2013), 78 FR 69910 (November 21, 2013).
    \154\ See Selection Plan Approval Order.
    \155\ See Selection Plan Approval Order, 79 FR 11152, 11160.
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    The Selection Plan divided the review and evaluation of bids, and 
the selection of the plan processor, into various stages. Specifically, 
pursuant to the Selection Plan, a selection committee reviewed all bids 
and determined which bids contained sufficient information to allow the 
Participants to meaningfully assess and evaluate the bids. The ten 
submitted bids were deemed ``Qualified Bids,'' and so passed to the 
next stage, in which each bidder presented its bids to the Participants 
on a confidential basis. On July 1, 2014, after conducting careful 
analysis and comparison of the bids, the Selection Committee voted and 
selected a shortlist of six eligible bidders. The Selection Committee 
determined which shortlisted bidders would be provided the opportunity 
to revise their bids. After the Selection Committee assessed and 
evaluated the revised bids, the Selection Committee selected the plan 
processor via two rounds of voting by the Participants, as described in 
the Selection Plan.
    The Selection Plan established an Operating Committee responsible 
for formulating, drafting, and filing with the Commission the CAT NMS 
Plan and for ensuring that the Participants' joint obligations under 
Rule 613 were met in a timely and efficient manner. In formulating the 
CAT NMS Plan, the Participants also engaged multiple persons across a 
wide range of roles and expertise, engaged the consulting firm Deloitte 
as project manager, and engaged the law firm WilmerHale to serve as 
legal counsel in drafting the Plan. Within this structure, the 
Participants focused on, among other things, comparative analyses of 
the proposed technologies and operating models, development of funding 
models to support the building and operation of the CAT, and detailed 
review of governance considerations. Given the complexity and scope of 
developing the CAT NMS Plan, these efforts were extensive.
    When it approved the CAT NMS Plan in 2016, the Commission 
reiterated its belief that the Selection Plan remains a ``reasonable 
approach,'' that ``the competitive bidding process to select the Plan 
Processor is a reasonable and effective way to choose a Plan 
Processor,'' and that ``the process set forth in the Selection Plan 
should be permitted to continue'':

    In approving the Selection Plan, the Commission stated that the 
Selection Plan is reasonably designed to achieve its objective of 
facilitating the development of the CAT NMS Plan and the selection 
of the Plan Processor. The Commission also found that the Selection 
Plan is reasonably designed to govern the process by which the SROs 
will formulate and submit the CAT NMS Plan, including the review, 
evaluation, and narrowing down of Bids in response to the RFP, and 
ultimately choosing the Plan Processor that will build, operate, and 
maintain the consolidated audit trail. The Commission believes that 
the process set out in the Selection Plan for selecting a Plan 
Processor remains a reasonable approach, which will facilitate the 
selection of Plan Processor through a fair, transparent and 
competitive process and that no modifications to the Selection Plan 
are required to meet the approval standard. . . . . In response to 
the comment that offered support for a specific Bidder, the 
Commission agrees with the Participants that the competitive bidding 
process to select the Plan Processor is a reasonable and effective 
way to choose a Plan Processor and thus believes that the process 
set forth in the Selection Plan should be permitted to 
continue.\156\
---------------------------------------------------------------------------

    \156\ See CAT NMS Plan Approval Order, 81 FR 84696, 84737.
---------------------------------------------------------------------------

(iii) Engagement With Market Participants and SEC
    During the process of developing the CAT NMS Plan, the Participants 
engaged in extensive and meaningful dialogue with market participants 
and the SEC. To this end, the Participants created a website to update 
the public on the progress of the CAT NMS Plan, published a request for 
comment on multiple issues related to the Plan, held multiple public 
events to inform the industry of the progress of the CAT and to address 
inquiries, and formed, and later expanded, a DAG to solicit more input 
from a representative industry group.\157\
---------------------------------------------------------------------------

    \157\ See Section D(11) of Appendix C of the CAT NMS Plan.
---------------------------------------------------------------------------

    The DAG included representatives of Participants and Industry 
Members and conducted meetings to discuss, among other things, 
technical and operational aspects the Participants were considering for 
the Plan. The

[[Page 76657]]

Participants issued press releases soliciting participants for the DAG, 
and a wide spectrum of firms was deliberately chosen to provide insight 
from various industry segments affected by CAT. The DAG meetings 
included discussions of topics such as option market maker quote 
reporting, requirements for capturing Customer IDs, timestamps and 
clock synchronization, reporting requirements for order handling 
scenarios, costs and funding, error handling and corrections, and 
potential elimination of systems made redundant by the CAT. From the 
inception of the DAG through September 2014, the DAG participated in 36 
meetings, as well as a variety of DAG subcommittee meetings.
(iv) Request for Exemption From Certain Requirements Under Rule 613
    Following multiple discussions between the Participants and both 
the DAG and the bidders, as well as among the Participants themselves, 
the Participants recognized that some provisions of Rule 613 would not 
permit certain solutions to be included in the Plan that the 
Participants, in coordination with the DAG, determined advisable to 
effectuate the most efficient and cost-effective CAT. Specifically, 
``the SROs reached the conclusion that additional flexibility in 
certain of the minimum requirements specified in Rule 613 would allow 
them to propose a more efficient and cost-effective approach without 
adversely affecting the reliability or accuracy of CAT Data, or its 
security and confidentiality.'' \158\ Consequently, the Participants 
submitted a request for exemptive relief from certain provisions of 
Rule 613 regarding: (1) options market maker quotes; (2) Customer-IDs; 
(3) CAT-Reporter-IDs; (4) CAT-Order-IDs on allocation reports; and (5) 
timestamp granularity.\159\ The Participants filed two supplements to 
the request for exemptive relief.\160\
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    \158\ Securities Exchange Release No. 77265 (March 1, 2016), 81 
FR 11856, 11856 (March 7, 2016) (``2016 Exemptive Order'').
    \159\ See Letter from Robert Colby, FINRA, on behalf of the 
SROs, to Brent J. Fields, Secretary, SEC, dated January 30, 2015.
    \160\ See Letter from Robert Colby, FINRA, on behalf of the 
SROs, to Brent J. Fields, Secretary, SEC, dated April 3, 2015; 
Letter from the SROs to Brent J. Fields, Secretary, SEC, dated 
September 2, 2015.
---------------------------------------------------------------------------

    After reviewing the exemptive request, the Commission determined 
that it was appropriate in the public interest and consistent with the 
protection of investors to grant the requested exemptive relief.\161\ 
In granting the exemptive relief, the Commission stated:
---------------------------------------------------------------------------

    \161\ See 2016 Exemptive Order.

    [T]he Commission is persuaded to provide flexibility in the 
discrete areas discussed in the Exemption Request so that the 
alternative approaches can be included in the CAT NMS Plan and 
subject to notice and comment. Doing so could allow for more 
efficient and cost-effective approaches than otherwise would be 
permitted. The Commission at this stage is not deciding whether the 
proposed approaches detailed below are more efficient or effective 
than those in Rule 613. However, the Commission believes the 
proposed approaches should be within the permissible range of 
alternatives available to the SROs.\162\
---------------------------------------------------------------------------

    \162\ See 2016 Exemptive Order, 81 FR 11856, 11857.

    The Commission further stated that the requested exemptive relief 
is consistent with the protection of investors. The Commission noted 
---------------------------------------------------------------------------
that:

    Doing so will provide the public an opportunity to consider and 
comment on whether these proposed alternative approaches would 
indeed be more efficient and cost-effective than those otherwise 
required by Rule 613, and whether such approaches would adversely 
affect the reliability or accuracy of CAT Data or otherwise 
undermine the goals of Rule 613. Moreover, if--as the SROs 
represent--efficiency gains and cost savings would result from 
including the proposed approaches in the CAT NMS Plan without 
adverse effects, then the resultant benefits could potentially flow 
to investors (e.g., lower broker-dealer reporting costs resulting in 
fewer costs passed on to Customers).\163\
---------------------------------------------------------------------------

    \163\ See supra note 162.

    The Participants incorporated the exemptive relief into the 
proposed CAT NMS Plan, which was noticed for comment, and the 
Commission ultimately approved the CAT NMS Plan with the more efficient 
and cost-effective alternative approaches described in the exemptive 
relief. Accordingly, the Participants believe that the costs incurred 
in developing the exemptive request were critical to the creation of a 
better CAT than was originally contemplated by Rule 613, and therefore 
should be recoverable as part of Historical CAT Assessment 1.
(v) Request for Extensions for Filing the CAT NMS Plan
    Rule 613(a)(1) under Regulation NMS required the Participants to 
jointly file the CAT NMS Plan on or before April 28, 2013, less than a 
year after the adoption of Rule 613. In recognition of the complexity 
of the project to create the CAT NMS Plan as well as industry interest 
in limiting or eliminating certain requirements of Rule 613 (e.g., 
addressing the reporting of options market maker quotes), the 
Participants requested two extensions of the deadline to file the CAT 
NMS Plan. The Participants described the need for additional time as 
follows:

    The SROs stated in their Request Letter that they do not believe 
that the 270-day time period provided for in Rule 613(a)(1) provides 
sufficient time for the development of the RFP, formulation and 
submission of bids, and review and evaluation of such bids. The SROs 
also stated that they believe additional time beyond the 270 days 
provided for in Rule 613(a)(1) is necessary in order to provide 
sufficient time for effective consultation with and input from the 
industry and the public on the proposed solution chosen by the SROs 
for the creation of the consolidated audit trail at the conclusion 
of the RFP process and the NMS plan itself.\164\
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    \164\ See Securities Exchange Act Release No. 69060 (March 7, 
2013),78 FR 15771, 15772 (March 12, 2013) (``March 2013 Exemptive 
Order'').

    In recognition of the need for additional time to refine the 
technical description of and requirements for the CAT and to allow for 
additional evaluation of the proposed cost and funding considerations, 
the SEC granted two extensions of this deadline.\165\ The SEC 
determined that both extensions were appropriate, in the public 
interest, and consistent with the protection of investors.\166\ In 
reaching this conclusion, the Commission stated that ``it understands 
that the creation of a consolidated audit trail is a significant 
undertaking and that a proposed NMS plan must include detailed 
information and discussion about many things.'' \167\ The SEC also 
noted the following:
---------------------------------------------------------------------------

    \165\ See March 2013 Exemptive Order; Securities Exchange Act 
Release No. 71018 (December 6, 2013), 78 FR 75669 (December 12, 
2013) (``December 2013 Exemptive Order'').
    \166\ March 2013 Exemptive Order, 78 FR 15771, 15772; December 
2013 Exemptive Order, 78 FR 75669, 75670.
    \167\ March 2013 Exemptive Order, 78 FR 15771, 15772.

    This additional time to complete the RFP process should allow 
the SROs to engage in a more thoughtful and comprehensive process 
for the development of an NMS plan. In this regard, the Commission 
notes that the additional time to solicit comment from the industry 
and the public at certain key points in the development of the NMS 
plan could identify issues that can be resolved earlier in the 
development of the consolidated audit trail and prior to filing the 
NMS plan with the Commission.\168\
---------------------------------------------------------------------------

    \168\ See supra note 167, at 15773.

    Given the Commission's recognition of the reasonableness and value 
of the extension of the deadline to file the CAT NMS Plan, the 
Participants believe that the costs incurred in developing the 
extension request were important to the process of developing the CAT 
NMS Plan, and therefore should be

[[Page 76658]]

recoverable as part of Historical CAT Assessment 1.
(vi) Submission and Approval of the CAT NMS Plan
    After extensive analyses and discussions with the DAG, bidders, 
market participants and the SEC staff, the Participants finalized the 
draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on 
September 30, 2014. Following additional discussions, the Participants 
filed several amendments to the CAT NMS Plan during 2015 and 2016. With 
these additional changes, the SEC published the CAT NMS Plan for notice 
and comment in May 2016.\169\ Following the comment period, the SEC 
approved the Plan in November 2016.\170\
---------------------------------------------------------------------------

    \169\ See Securities Exchange Act Release No. 77724 (April 27, 
2016), 81 FR 30614 (May 17, 2016).
    \170\ See CAT NMS Plan Approval Order.
---------------------------------------------------------------------------

(vii) Legal Costs Incurred Prior to the Effective Date of the CAT NMS 
Plan
    The Pre-Formation Costs include legal costs of $3,196,434. The 
legal services were performed by WilmerHale. The selection 
considerations and fees for WilmerHale were described in detail above. 
Prior to the creation of CAT LLC, WilmerHale was engaged to represent 
the consortium of SROs, not the individual Participants. For 
administrative purposes, FINRA agreed to receive such legal bills, 
although such costs were shared among the Participants. Therefore, the 
legal costs incurred with respect to WilmerHale do not include legal 
costs incurred by the individual Participants. These pre-formation 
legal costs are described in detail above and are further described 
below:
    <bullet> Analyzed various legal matters associated with the 
Selection Plan and drafted an amendment to Selection Plan;
    <bullet> Assisted with the RFP and bidding process for the CAT Plan 
Processor;
    <bullet> Analyzed legal matters related to the DAG;
    <bullet> Drafted the CAT NMS Plan, analyzed various items related 
to the CAT NMS Plan, and responded to comment letters on the CAT NMS 
Plan;
    <bullet> Provided legal support for the formation of the legal 
entity, the governance of the CAT, including governance support prior 
to the adoption of the CAT NMS Plan, which involved support for the 
full committee of exchanges and FINRA as well as subcommittees of this 
group (e.g., Joint Subcommittee Group, Technical, Industry Outreach, 
Cost and Funding, and Other Products) and the DAG, and governance 
support during the transition to the new governance structure under the 
CAT NMS Plan;
    <bullet> Drafted exemptive requests;
    <bullet> Provided interpretations related to the CAT NMS Plan;
    <bullet> Provided support with regard to discussions among the 
exchanges, FINRA and other third parties, such as Deloitte;
    <bullet> Provided tax advice with regard to CAT's status as a tax-
exempt organization; and
    <bullet> Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretive and 
implementation issues.
(viii) Consulting Costs Incurred Prior to the Effective Date of the CAT 
NMS Plan
    The Pre-Formation Costs include consulting costs of $10,589,273. 
The consulting services were performed by Deloitte. The selection 
considerations and fees for Deloitte were described in detail above. 
Prior to the creation of CAT LLC, for administrative purposes, Deloitte 
was engaged by FINRA to provide consulting services related to CAT, but 
the costs were shared by the consortium of SROs per agreement. 
Therefore, the consulting costs incurred with respect to Deloitte do 
not include consulting costs incurred by the individual Participants. 
The pre-formation consulting costs include the following:
    <bullet> Established and implemented program operations for the CAT 
project, including the program management office and workstream design;
    <bullet> Assisted with the Plan Processor selection process, 
including but not limited to, the development of the RFP and the bidder 
evaluation process, and facilitation and consolidation of the 
Participants' independent reviews;
    <bullet> Assisted with the development and drafting of the CAT NMS 
Plan, including conducting cost-benefit studies, reviewing technical 
requirements of other NMS plans, analyzing OATS and CAT requirements, 
and drafting appendices to the Plan;
    <bullet> Provided governance support to the CAT, including 
governance support prior to the adoption of the CAT NMS Plan, which 
involved support for the full committee of exchanges and FINRA as well 
as subcommittees of this group (e.g., Joint Subcommittee Group, 
Technical, Industry Outreach, Cost and Funding, and Other Products) and 
the DAG;
    <bullet> Provided support for updating the SEC on the progress of 
the development of the CAT;
    <bullet> Provided support for industry outreach sessions, including 
with regard to program design and agenda development, program support 
and logistics and coordination; and
    <bullet> Provided support in fact finding, drafting content and 
meeting coordination for WilmerHale with regard to the CAT and the 
development of the CAT NMS Plan.
    Such Pre-Formation Costs did not include costs related to the Chair 
of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not 
yet been adopted.
(ix) Public Relations Costs Incurred Prior to the Effective Date of the 
CAT NMS Plan
    The Pre-Formation Costs include public relations costs of $57,174. 
The public relations services were performed by Peppercomm. The 
selection considerations and fees for Peppercomm are described in 
detail above. The costs related to Peppercomm were shared among the 
SROs. Therefore, the public relations costs do not include public 
relations costs incurred by the individual Participants. The pre-
formation public relations costs include services related to 
communications with the public regarding the CAT, including monitoring 
developments related to the CAT (e.g., congressional efforts, public 
comments and reaction to proposals, press coverage of the CAT), 
reporting such developments to CAT LLC, and drafting and disseminating 
communications to the public regarding such developments as well as 
reporting on developments related to the CAT.
(B) Cloud Hosting Services
    In approving the CAT Funding Model, the Commission recognized that 
it is appropriate to recover reasonable costs related to cloud hosting 
services as a part of Historical CAT Assessments. CAT LLC believes that 
the costs related to cloud hosting services described in detail above 
are reasonable and appropriate given the strict data processing 
timelines and storage requirements imposed by the Commission-approved 
CAT NMS Plan and should be recoverable as a part of Historical CAT 
Assessment 1.
(i) Reasonableness of AWS Costs Given the Requirements of the CAT NMS 
Plan
    CAT LLC believes that the costs for the cloud hosting services are 
reasonable, both in terms of the level of the fees paid by CAT LLC for 
cloud hosting services provided by AWS and the scope of the services 
performed by AWS for CAT LLC. CAT LLC believes that both the scope and 
amount of the costs for cloud hosting services are reasonable given the 
current

[[Page 76659]]

requirements of the CAT NMS Plan adopted pursuant to Rule 613, 
including the strict data processing timeline, storage and other 
technical requirements under the Commission-approved CAT NMS Plan.
    CAT LLC believes that the level of fees for the cloud hosting 
services is reasonable, taking into consideration a variety of factors, 
including the expected volume of data and the breadth of services 
provided and market rates for similar services.
    CAT LLC also believes that the scope of services provided by AWS 
for the CAT are appropriate given the current requirements of the 
Commission-approved CAT NMS Plan. As described above, the cloud hosting 
services costs reflect a variety of factors including, among other 
things:
    <bullet> Breadth of Cloud Activities. AWS was engaged by FCAT, the 
Plan Processor, to provide a broad range of services to the CAT, 
including data ingestion, data management, and analytic tools. Services 
provided by AWS necessary to the CAT include storage services, 
databases, compute services, and other services (such as networking, 
management tools and development operations (``DevOps'') tools). AWS 
also was engaged to provide the various environments for CAT, such as 
the development, performance testing, test and production environments, 
which are required by the CAT NMS Plan.
    <bullet> High Data Volume. The cost for AWS services for the CAT is 
a function of the volume of CAT Data. While it is not linear, the 
greater the amount of CAT Data, the greater the cost of AWS services to 
the CAT. The data volume handled by AWS now far exceeds the original 
volume estimates for the CAT.
    <bullet> Plan Requirements. The cost for AWS services also reflects 
the technical requirements necessary to meet the stringent performance 
and other requirements for processing CAT Data. These Plan-dictated 
processing timelines, storage, testing, security and other technical 
requirements are significant drivers of AWS costs.
    <bullet> Cost Avoidance Efforts. CAT LLC and FCAT have engaged in 
ongoing efforts to seek to avoid and minimize AWS costs where 
permissible under the Plan. Accordingly, these cost avoidance efforts 
have limited the extent of AWS costs.
    In addition, various requirements of the CAT NMS Plan adopted 
pursuant to Rule 613 contribute to the significant cloud hosting 
services costs, and that various Plan requirements could be amended or 
removed without affecting the regulatory purpose of the CAT. Indeed, 
CAT LLC has repeatedly sought exemptive relief and filed amendments to 
the CAT NMS Plan, and has even filed suit against the Commission, to 
seek to revise or eliminate certain costly requirements related to the 
CAT. However, despite these efforts, absent the Commission granting 
exemptive relief or approving cost savings amendments to the CAT NMS 
Plan, CAT LLC, the Participants and Industry Members are all required 
to comply with such requirements.
(ii) Effect of CAT Design on CAT Costs
(a) Efficient CAT Design
    CAT is reasonably designed to efficiently and effectively utilize 
cloud computing and storage services, given the requirements of the 
Commission-approved CAT NMS Plan, including requirements related to 
security, operational reliance and quality assurance, and 
maintainability.
    The Plan Processor uses state-of-the-art software that meets the 
strict security standards of the CAT NMS Plan. CAT utilizes a big data 
processing framework that is extensively used by large data processing 
companies, such as Apple, Meta, Netflix, IBM and Google. As such, it 
has substantial commercial support and support in the open-source 
community. It is also well suited for use with regard to iterative 
types of algorithms and query functions and analytics that the CAT 
requires, and it provides the heightened security necessary for the 
CAT.
    The development and implementation of the design of CAT is not and 
has not been static. CAT LLC and the Plan Processor are always 
evaluating new innovations and service offerings from AWS and other 
providers to seek to maximize efficiency and cost avoidance while still 
satisfying the requirements of the CAT NMS Plan. These efforts have led 
to substantial savings to date. The cloud hosting costs for 2023 were 
less than the cloud hosting costs for 2022 by $8 million despite 
processing seven trillion more events in 2023 due to the efficiency and 
cost avoidance efforts for cloud hosting services. For example, when 
AWS introduced new storage options, FCAT adopted the cost-efficient new 
storage option after establishing that the new offering would satisfy 
the security and other standards of the CAT NMS Plan. This change led 
to millions of dollars of savings in storage costs. Similarly, when AWS 
introduced a new compute processor, FCAT adopted this new compute 
processor, which lead to millions of dollars in savings in compute 
costs. However, in other cases, new cloud technology developments could 
not be implemented in CAT because they would not satisfy the security 
or other requirements of the CAT NMS Plan.
    When evaluating the design of the CAT, it must be kept in mind that 
the CAT is not a typical commercial technology project. The ability to 
make use of technology approaches that may lead to cost avoidance is 
also subject to the restrictive requirements of the CAT NMS Plan, such 
as processing timeframes, requirements for retention of data versions, 
query requirements, and security standards. Because such requirements 
are set forth in the CAT NMS Plan, any modification of such 
requirements are subject to the time-consuming process of amending the 
CAT NMS Plan or seeking an exemption from the relevant requirement. For 
example, CAT LLC recently has filed an amendment to address several of 
these expensive Plan requirements.\171\
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    \171\ See, e.g., Securities Exchange Act Release No. 99938 
(April 10, 2024), 89 FR 26983 (April 16, 2024); Letter from Brandon 
Becker, CAT NMS Plan Operating Committee Chair, to Vanessa 
Countryman, Secretary, SEC, dated March 27, 2024 (proposing 
amendments to the CAT NMS Plan for $23 million in annual savings).
---------------------------------------------------------------------------

(b) CAT Was Designed To Minimize Industry Member Effort
    The CAT System also was designed to minimize the extent to which 
Industry Members would need to alter their systems to report to CAT. 
During the design process, Industry Member groups argued that it would 
make more sense financially for the CAT to accommodate differences in 
industry systems, than for all Industry Members to change their 
systems. Moreover, such design choices would facilitate consistency, 
uniformity and accuracy in reporting. Requiring the CAT to make such 
accommodations may increase CAT costs while accommodating CAT 
Reporters.
    Based on the requirements in the CAT NMS Plan and/or in response to 
industry requests for functionality to be embedded with the Plan 
Processor to streamline or limit Industry Member system changes, the 
CAT has been designed to limit the effect on Industry Members. The 
following provides examples of such accommodations:
    <bullet> Industry Member Reporting. In light of the complexity of 
Industry Member market activity, the CAT's order reporting and linkage 
scenarios document for Industry Members is over 800 pages in length, 
addressing nearly 200 scenarios.\172\ The Industry Member

[[Page 76660]]

Technical Specifications allow for dozens of specific event types, 
which drive complexity for the Plan Processor, but streamline reporting 
for Industry Members. Furthermore, the Plan Processor greatly expanded 
Industry Member linkage requirements to support, among other things, 
child events and supplemental events, allowing for ``stateless as-you-
go'' and ``batch end-of-day'' reporting when all data is available. 
Accordingly, CAT takes on the significant cost and effort of providing 
the required linkages between CAT events; correspondingly, Industry 
Members are not required to perform this costly task.
---------------------------------------------------------------------------

    \172\ See CAT Industry Member Reporting Scenarios v. 4.10 
(October 21, 2022), https://www.catnmsplan.com/sites/default/files/2022-10/10.21.22_Industry_Member_Tech_Specs_Reporting_Scenarios_v4.10_CLEAN.pdf.
---------------------------------------------------------------------------

    <bullet> File Submission Process. The CAT was designed to 
accommodate the varying needs of CAT Reporters with regard to the file 
submission process. For example, in a 2018 letter, FIF stated that 
``[t]he SFTP-based submission process is cumbersome, exposes industry 
members to unnecessary complexity, and puts the burden of support on 
the CAT Reporter rather than imbedding more functionality into the Plan 
Processor.'' \173\ Currently, FCAT provides two mechanisms for 
submitting files: SFTP via a private network, and the Web via Reporter 
Web Portal.
---------------------------------------------------------------------------

    \173\ See Letter from Janet Early, FIF, to Thesys CAT, dated 
March 29, 2018.
---------------------------------------------------------------------------

    <bullet> Error Corrections. The industry also emphasized the need 
for the CAT to provide error correction tools and functionalities to 
identify, rectify and re-submit corrections within the required 
timeframe. For example, FIF stated in a 2018 letter the following:

    To be clear, if OATS-like error correction tools are not made 
available on Day 1, hundreds of firms will be required to create and 
test their own tools or obtain vendor alternatives prior to the CAT 
Go-Live Date. Proprietary tools will require additional system 
builds, access to and ingestion of CAT data to perform system 
validation, and testing which will further stress the limited number 
of subject matter experts (``SMEs'') dedicated to the implementation 
of CAT reporting. Should this occur, inevitably firms (especially 
small firms who lack the necessary IT staff to write code and 
develop proprietary systems), may be put in the position of passing 
onto investors the cost required to build hundreds of redundant 
systems.\174\
---------------------------------------------------------------------------

    \174\ See Letter from Christopher Bok, FIF, to Jay Clayton, 
Chair, SEC, dated December 11, 2018, at 4.

    CAT provides various tools to help Industry Members identify and 
rectify errors.
    <bullet> Data Ingestion Format. The industry also recommended that 
CAT adopt a flexible input format that provides an option for Industry 
Members to submit data in formats that are already in use to reduce 
costs and potential reporting errors. For example, FIF argued the 
following:

    FIF CAT WG is not proposing a specific format; rather, we are 
proposing flexibility of input formats which includes support of 
existing formats (e.g., OATS, FIX) as well as a baseline 
specification where all fields are defined, and normalized. The 
input formats must be clearly and thoroughly defined in Technical 
Specifications, including FAQs.
    Mandating a uniform format for reporting data to the CAT 
simplifies the task for the Central Repository of consolidating/
storing data, but it puts the burden on each CAT Reporter to 
accurately translate their current (e.g., OATS) reporting 
information into a uniform CAT interface. However, that is likely to 
yield more errors because it is very dependent on accurate, complete 
and timely information (Technical Specifications, FAQs, meta-data, 
competent CAT help desk) available to CAT Reporters, availability of 
sophisticated CAT test tools to validate interface protocols, and 
the skill levels of the estimated 300+ unique CAT Reporters/
Submitters during Phase 1 of CAT. Concentrating the responsibility 
of data conversions with the Central Repository is a reasonable 
trade-off that should yield fewer errors, and greater accuracy.\175\
---------------------------------------------------------------------------

    \175\ See Letter from Mary Lou Von Kaenel, Managing Director, 
FIF, to Brent Fields, Secretary, SEC, dated July 18, 2016, at 92, 
https://www.sec.gov/comments/4-698/4698-13.pdf.

    CAT provides such a flexible input format.
(c) Effect of Initial Plan Processor Design
    The costs for cloud hosting services are appropriate and have not 
been adversely affected by the original design and approaches of the 
Initial Plan Processor. FCAT's design costs are the result of the 
requirements of the Commission-approved CAT NMS Plan.
    When FCAT took over as the Plan Processor from Thesys, it utilized 
certain aspects of the technical specifications created by Thesys in 
its design. However, FCAT has not maintained aspects of the original 
design that would not be appropriate for the CAT. FCAT revised and 
enhanced the original technical specifications of the CAT System to 
increase its efficiency and efficacy, and to ensure its compliance with 
the CAT NMS Plan. For example, the Initial Plan Processor's approach 
utilized many more fields than FCAT's approach, which relies on 
additional linkages. With the additional linkages, the CAT System takes 
on more of the CAT-related burdens than the Industry Members. Such an 
approach serves to facilitate consistency, uniformity and accuracy in 
reporting.
    Moreover, FCAT did not utilize the system built by the Initial Plan 
Processor; it rebuilt the CAT System based on revised technical 
specifications. For example, the Initial Plan Processor used an on-
premises processing approach which was not geared toward the huge 
amounts of data stored in the CAT, while FCAT adopted a cloud-based 
solution in response to such data demands.
    Furthermore, given the very short timeframe to develop the CAT 
System and the prior optimization of certain query tools (e.g., Diver) 
for regulatory use with significant amounts of data, FCAT determined to 
rely upon certain existing FINRA tools and adapt them for use with the 
CAT.
(iii) Consideration of AWS Alternatives
    CAT LLC continues to support the selection of AWS as the cloud 
hosting services provider for CAT given the compliance, operational, 
and security requirements of the CAT. Independent analyses confirm 
these conclusions, noting that ``AWS is an excellent choice for either 
strategic or tactical use and recommends considering AWS for almost all 
cloud IaaS or IaaS+PaaS scenarios.'' \176\ AWS provides the following 
benefits to CAT, among others:
---------------------------------------------------------------------------

    \176\ See, e.g., Lydia Leong & Adrian Wong, Solution Comparison 
for Strategic Cloud Integrated IaaS and PaaS Providers (July 28, 
2023) (``Strategic Cloud Assessment Article'').
---------------------------------------------------------------------------

    <bullet> Broad Suitability. AWS has a long track record of 
successfully serving cloud customers with mission-critical projects.
    <bullet> Proven Scalability. AWS has demonstrated that it is 
capable of building and delivering services on a large scale.
    <bullet> Track Record of Innovation. AWS continues to rapidly 
innovate, both in terms of new domains of capability and at a 
fundamental level, thereby facilitating innovation for its customers.
    <bullet> Resiliency/Dependability. Another benefit of AWS is its 
resiliency; it has a strong track record of stable services. As noted 
in a review of cloud service providers, ``[c]ustomers like to have a 
broad set of options for resilience and for their cloud providers to 
have a strong track record of stable services (continuously available, 
without operational quirks). Only AWS fulfills both desires.'' \177\
---------------------------------------------------------------------------

    \177\ See supra note 176.
---------------------------------------------------------------------------

    <bullet> Technical and Customer Support. AWS consistently provides 
high-quality technical and customer support and engagement. Given the 
size, scope and regulatory importance of CAT, customer support and 
engagement that CAT has

[[Page 76661]]

with the highest levels of AWS are very important to the success of the 
CAT.
    <bullet> Scale. AWS is capable of supporting large-scale solutions, 
which is critical given the size and magnitude of the CAT.
    <bullet> Security. AWS provides the security features necessary for 
the CAT.
    In addition, the nature of the CAT, including the amount of data it 
must process and the size of its data footprint, does not allow for a 
multi-cloud solution as this would be cost prohibitive and greatly 
increase the security boundary and associated risk profile of the CAT. 
For example, a multi-cloud hosting option would increase costs, 
complexity, and risk for operations with regard to, for example, 
DevOps, production support, and networking. Similarly, with regard to 
security, a multi-cloud solution would increase risk, including with 
regard to the need for data transfers between cloud providers and the 
expansion of the security boundary. With regard to labor, a multi-cloud 
solution would lose economies of scale due to the need to support 
unique cloud requirements. Accordingly, the use of single-cloud 
solution continues to provide advantages with regard to cost, 
complexity, and risk. Indeed, ``[t]he best practice is to focus on a 
single primary strategic provider.'' \178\
---------------------------------------------------------------------------

    \178\ See supra note 176.
---------------------------------------------------------------------------

    Furthermore, if another cloud service provider were determined to 
be a better match for the CAT at some future date, switching cloud 
service providers would be a very significant, expensive and time-
consuming effort. Such an effort would likely be a 10- to-15-year 
commitment at a substantial expense. Such a move would require the 
replication or redesign of the underlying cloud environments (e.g., 
organizational setup, identify management, accounts, environments, 
DevOps tooling likes release management/config management/network 
management), as the new provider likely would not have the same 
infrastructure and software. Once that process has been completed, an 
exabyte of CAT data would need to be securely migrated to the new 
platform.
(C) Funding Model Filings
    CAT LLC believes that the recovery of costs related to the 
development of the funding model is appropriate, and that the amount 
and scope of such costs, as described above, are reasonable.
    Funding the CAT is a critical aspect of Rule 613 and the CAT NMS 
Plan. Article XI of the CAT NMS Plan describes in detail the 
requirements for funding the CAT, and the Participants are required to 
comply with and enforce compliance with the funding requirements of the 
CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the 
development and implementation of a funding model for the CAT is as 
much a part of the requirements of the CAT NMS Plan as the development 
and operation of the CAT System. CAT LLC sees no reason to distinguish 
the efforts to develop a funding model from, for example, efforts to 
develop the CAT System, in seeking to recover reasonable CAT costs.
    Moreover, in approving the CAT Funding Model, the Commission 
recognized that it is appropriate to recover reasonable costs for legal 
services as a part of Historical CAT Assessments. As approved by the 
SEC, the CAT NMS Plan states that ``the reasonably budgeted CAT costs 
shall include . . . legal . . . costs.'' \179\ In addition, the CAT NMS 
Plan also requires Participants to include in their fee filings ``a 
brief description of the amount and type of the Historical CAT Costs, 
including . . . legal . . . costs.'' \180\ In keeping with these 
provisions, this filing provides a brief description of reasonably 
budgeted legal costs above. These legal costs include costs related to 
the development of the CAT Funding Model.
---------------------------------------------------------------------------

    \179\ Section 11.1(a)(i) of the CAT NMS Plan.
    \180\ Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
---------------------------------------------------------------------------

    In addition, the legal costs incurred for the assistance in 
developing the CAT Funding Model are reasonable in both amount and 
scope and should be recoverable as a part of Historical CAT Assessment 
1. As described above, the specialized services were performed by 
experienced counsel at negotiated rates for such services that reflect 
both the extent of the services and market rates. Moreover, the scope 
of the legal costs associated with the development of the funding model 
reflect the complexity of the task in satisfying the detailed 
requirements of the CAT NMS Plan, the standards of the Exchange Act, 
and the many perspectives of the different market constituents 
potentially affected by or interested in the funding model, including 
Industry Members, Participants and investors. The many and varied 
comments by market participants on CAT funding over the years 
demonstrate the complexity of the task.
(D) Costs Related to Litigation With the SEC
    CAT LLC believes that the recovery of legal costs related to the 
litigation with the SEC regarding the CAT NMS Plan is appropriate, and 
that the amount and scope of such costs, as described above, are 
reasonable.
    As a preliminary matter, as discussed above, the Commission 
recognized that it is appropriate to recover reasonable costs for legal 
services as a part of Historical CAT Assessments.\181\ Moreover, CAT 
LLC initiated such litigation, and incurred the related legal costs, 
because it was critical to address the Commission's interpretations of 
the CAT NMS Plan. Among other things, CAT LLC initiated the litigation 
because such interpretations threatened to impose unnecessary costs on 
the CAT, which would be borne by the Participants and Industry Members. 
Indeed, in response to the litigation, the Commission provided 
exemptive relief that allowed alternative, more cost-effective 
approaches to the implementation of the CAT. Specifically, in the 2023 
exemptive order, the Commission stated:
---------------------------------------------------------------------------

    \181\ See Sections 11.1(a)(i) and 11.3(b)(iii)(B)(II) of the CAT 
NMS Plan.

    The conditional exemptive relief in this Order allows for the 
implementation of alternative regulatory solutions that continue to 
advance the regulatory goals that Rule 613 and the CAT NMS Plan were 
intended to promote, while reducing the implementation and 
operational costs, burdens, and/or difficulties that would otherwise 
be incurred by the Participants and Industry Members that must fund 
the CAT.\182\
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    \182\ See Settlement Exemptive Order at 77129-30.

    CAT LLC believes it is reasonable and appropriate to incur costs to 
limit the need to incur even greater costs due to certain 
interpretations of the Plan.
    In addition, the legal costs incurred during the litigation are 
reasonable in both amount and scope and should be recoverable as a part 
of Historical CAT Assessment 1. As described above, the specialized 
services were performed by experienced counsel at market rates for such 
services. As such, the legal costs related to this litigation incurred 
during the period covered by Historical CAT Assessment 1 were 
reasonable.
    Finally, Industry Members will directly benefit from the result of 
the litigation because it has addressed CAT NMS Plan requirements that 
would have imposed significantly greater costs on the CAT. Accordingly, 
it is reasonable and appropriate that the costs of such litigation be 
included in the Historical CAT Costs 1.
(E) Costs Related to the Initial Plan Processor
    CAT LLC believes that it is appropriate to recover costs related to

[[Page 76662]]

the services performed by the Initial Plan Processor prior to November 
15, 2017, which was the date by which Participants were required to 
begin reporting to the CAT, due to the delay in the commencement of 
reporting to the CAT. As discussed above, the Participants determined 
to exclude all CAT costs incurred from November 15, 2017 through 
November 15, 2018, which includes $37,852,083 in Thesys costs incurred 
from November 15, 2017 through November 15, 2018 (as well as other CAT 
costs during this period). The remaining Thesys costs incurred after 
November 15, 2018 are the $19,628,791 in capitalized developed 
technology costs for the period from November 16, 2018 through February 
2019 incurred in the development of the CAT by the Initial Plan 
Processor, as well as a transition fee for the transition from the 
Initial Plan Processor to the successor Plan Processor. The 
Participants would remain responsible for 100% of these $19,628,791 in 
costs.
    CAT LLC believes that it is appropriate to recover costs related to 
the services performed by the Initial Plan Processor prior to November 
15, 2017. CAT LLC notes that the development and implementation of the 
CAT System, while unprecedented in scope and design, is like any other 
large and innovative technology project in that, inevitably, there were 
adjustments and refinements in the technical approach as the project 
developed, even with substantial planning efforts and oversight prior 
to the build. This is even more likely when the project faces a very 
tight implementation schedule, such as the one imposed by the 
Commission in Rule 613 and the CAT NMS Plan. However, an adjusted 
approach does not mean that the funds were not valid expenditures and 
should not be recovered.
    The reasonableness of Thesys costs should be evaluated by the 
Commission as of the time they were incurred, not in hindsight. As 
detailed above, the Commission concluded in 2016 that ``the competitive 
bidding process to select the Plan Processor is a reasonable and 
effective way to choose a Plan Processor,'' and that ``the process set 
forth in the Selection Plan should be permitted to continue.'' \183\ 
Following this process, the Participants notified the Commission of the 
selection of Thesys as the Initial Plan Processor on January 17, 
2017.\184\ At the time, neither the Commission nor the industry argued 
that the selection of the Initial Plan Processor was unreasonable or 
otherwise inconsistent with the CAT NMS Plan, nor did they predict the 
selection would result in unanticipated delays in the implementation of 
the CAT System. On the contrary, on April 4, 2017, the President of 
SIFMA wrote that ``SIFMA looks forward to commencing work with the SROs 
and Thesys.'' \185\
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    \183\ CAT NMS Plan Approval Order, 81 FR 84696, 84737.
    \184\ See Letter from the Participants to Brent J. Fields, 
Secretary, SEC, dated January 18, 2017, https://www.sec.gov/divisions/marketreg/rule613-info-notice-of-plan-processor-
selection.pdf.
    \185\ See Letter from Kenneth E. Bentsen, Jr., President and 
CEO, SIFMA, to Participants, dated April 4, 2017) (re: Selection of 
Thesys as CAT Processor), https://www.sifma.org/wp-content/uploads/2017/05/SIFMA-Submits-Comment-Letter-to-SRO-on-the-selection-of-Thesys-as-the-CAT-Processor.pdf.
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    As noted in the CAT Funding Model Approval Order, ``[i]n Rule 613, 
the Commission made the determination that the costs of the CAT should 
be shared by the Participants and Industry Members.'' \186\ If the CAT 
Funding Model had existed on day 1, the risk of any unanticipated costs 
or challenges associated with the Initial Plan Processor would have 
been fairly and reasonably shared among the Participants and Industry 
Members on an ongoing basis. Given that the Commission concluded in 
2012 that the costs of the CAT would be shared by the Participants and 
Industry Members, it is not fair or reasonable to determine in 
hindsight that all of the risk involved in developing the CAT should be 
allocated entirely to the Participants.
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    \186\ CAT Funding Model Approval Order, 88 FR 62628, 62650.
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(F) CAIS Implementation Costs
    CAT LLC believes that the recovery of CAIS-related costs is 
appropriate, and that the amount and scope of such costs, as described 
above, are reasonable, and that the reasonableness of historical costs 
should be evaluated by the Commission as of the time they were 
incurred, not in hindsight.
    In approving the CAT Funding Model, the Commission recognized that 
it is appropriate to recover reasonable CAIS operating costs as a part 
of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan 
states that ``the reasonably budgeted CAT costs shall include . . . 
CAIS operating fees.'' \187\ In addition, the CAT NMS Plan also 
requires Participants to include in their fee filings ``a brief 
description of the amount and type of the Historical CAT Costs, 
including . . . CAIS operating fees.'' \188\ In keeping with these 
provisions, this filing provides a brief description of reasonably 
budgeted CAIS operating fees.
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    \187\ Section 11.1(a)(i) of the CAT NMS Plan.
    \188\ Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
---------------------------------------------------------------------------

    In addition, CAT LLC determined that the CAIS operating fees 
described above are reasonable in both amount and scope and should be 
recoverable as a part of Historical CAT Assessment 1. The ``CAIS 
Operating Costs'' for Historical CAT Assessment 1 total $9,480,587, 
with Pre-FAM costs of $2,072,908, FAM 1 costs of $254,998, FAM 2 costs 
of $1,590,298, and FAM 3 costs of $5,562,383. As described above, the 
CAIS operating fees were incurred with regard to two categories of 
CAIS-related efforts: (1) the acceleration of the reporting of LTIDs; 
and (2) the development of the CAIS Technical Specifications and the 
building of CAIS. These two categories of costs are discussed in more 
detail below.
(i) LTID Reporting
    During the period covered by Historical CAT Assessment 1, the CAIS 
operating costs included costs related to the acceleration of the 
reporting of LTIDs earlier than originally contemplated during this 
period at the request of the SEC and in accordance with exemptive 
relief granted by the SEC.\189\ As the SEC approved in this exemptive 
relief, the Participants proposed ``to require the reporting of LTIDs 
to the CAT in Phases 2c and 2d, instead of with the rest of Customer 
Account Information in Phase 2e, which potentially could result in an 
earlier elimination of broker-dealer recordkeeping, reporting and 
monitoring requirements of the Large Trader Rule.'' \190\ To implement 
the reporting of LTIDs to the CAT, the following steps were taken 
during the period covered by Historical CAT Assessment 1:
---------------------------------------------------------------------------

    \189\ See Phased Reporting Exemptive Relief Order, 85 FR 23075, 
23079-80.
    \190\ See supra note 189, at 23078-79, n.70.
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    <bullet> After FCAT developed the LTID Technical Specifications, 
the LTID Technical Specifications were published on January 31, 2020, 
with additional updates provided to the LTID Technical Specifications 
through April 2021.\191\
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    \191\ The LTID Technical Specifications, including original 
drafts and updated versions, are available on the Industry Member 
Specifications page of the CAT website (https://www.catnmsplan.com/specifications/im).
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    <bullet> The LTID account information testing environment opened on 
August 24, 2020.
    <bullet> The LTID account information reporting production 
environment opened on December 14, 2020.
    <bullet> CAT Reporters were required to request their production 
readiness

[[Page 76663]]

certification for account information related to LTIDs by the deadline 
of April 9, 2021.
    <bullet> The LTID account information reporting for Phases 2a, 2b 
and 2c for Large Industry Members went live on April 26, 2021.
    <bullet> The LTID account information reporting for Phases 2d for 
Large Industry Members went live on December 13, 2021.
    <bullet> The LTID account information reporting for Phases 2a, 2b, 
2c and 2d for Small Industry Members went live on April 26, 2021.
    Throughout this project, FCAT and CAT LLC worked closely with the 
industry on LTID and CAIS reporting. Between December 2019 and December 
2021, at least 57 checkpoint calls, webinars, and technical working 
group meetings with industry representatives were hosted to address 
issues and to educate CAT Reporters regarding LTID and CAIS 
reporting.\192\
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    \192\ Such contact points with the industry are described in 
detail on the Events web page of the CAT website (https://www.catnmsplan.com/events).
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    The LTID reporting project was successfully completed in a timely 
fashion, and the fees related to the project were reasonable. 
Accordingly, CAT LLC appropriately seeks to recover such costs via 
Historical CAT Assessment 1.
(ii) CAIS Reporting
    During the period covered by Historical CAT Assessment 1, FCAT 
began the development of the full CAIS Technical Specifications and the 
building of CAIS. The CAIS Technical Specifications were developed 
during this period as follows:
    <bullet> Iterative drafts of the CAIS Technical Specifications were 
published on June 30, 2020, December 1, 2020, and January 1, 2021.\193\
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    \193\ The CAIS Technical Specifications, including original 
drafts and updated versions, are available on the Industry Member 
Specifications page of the CAT website (https://www.catnmsplan.com/specifications/im).
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    <bullet> The full, final CAIS Technical Specifications were 
published on January 29, 2021.
    <bullet> Updated versions of the CAIS Technical Specifications were 
published throughout 2021.\194\
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    \194\ Six updated versions of the CAIS Technical Specifications 
were published during 2021, in March, May, June, August, October and 
December.
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    As discussed above, FCAT and CAT LLC frequently engaged with the 
industry regarding the development of CAIS, hosting regular checkpoint 
calls, webinars, and technical working group meetings with industry 
representatives to address any issues, including addressing the 
interplay between Industry Members' existing customer systems and CAIS, 
and to educate CAT Reporters regarding LTID and CAIS reporting. Such 
engagement was critical to the CAIS development process as the CAIS 
project was unprecedented in terms of its content, scope and 
complexity.
    During this period, FCAT also commenced the building of the CAIS 
system in accordance with the CAIS Technical Specifications during the 
period covered by Historical CAT Assessment 1. The CAIS system was 
ready for industry testing shortly after the end of this period in 
January 2022.
    The CAIS Technical Specifications and the CAIS system, as developed 
during this period, continue to be in use today. Industry Members have 
been required to report, and have continuously reported, required data 
to CAIS on a daily basis since November 7, 2022, consistent with 
interim reporting obligations. The CAIS system accepts and validates 
the CAIS data submitted by Industry Members and provides Industry 
Members with initial feedback on data errors. In light of the 
unprecedented nature of the CAIS system, certain changes to the system, 
such as changes related to error corrections and the CAIS regulatory 
portal, were necessary to finalize CAIS reporting. FCAT worked to 
address these remaining issues,\195\ and, as of May 31, 2024, FCAT 
indicated that it had achieved the final CAIS reporting milestone. 
Accordingly, CAT LLC appropriately seeks to recover CAIS operating 
costs via Historical CAT Assessment 1.
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    \195\ See, e.g., CAT Q4 2023 Quarterly Progress Report (Jan 30, 
2024), https://www.catnmsplan.com/sites/default/files/2024-01/CAT-Q4-2023-QPR.pdf.
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(G) Public Relations Costs
    CAT LLC believes that the recovery of public relations costs is 
appropriate and that the amount and scope of such costs, as described 
above, are reasonable.
    The Commission has long recognized that external public relations 
costs are reasonably associated with creating, implementing and 
maintaining the CAT. In the CAT NMS Plan Approval Order, the Commission 
estimated that the Participants had collectively spent approximately 
$2,400,000 in preparation of the CAT NMS Plan on external public 
relations, legal, and consulting costs, and estimated that the 
Participants would continue to incur external public relations costs 
associated with maintaining the CAT upon approval of the CAT NMS 
Plan.\196\
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    \196\ See CAT NMS Plan Approval Order, 81 FR 84696, 84917-18.
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    In approving the CAT Funding Model, the Commission recognized that 
it is appropriate to recover reasonable costs for public relations 
services as a part of Historical CAT Assessments. As approved by the 
SEC, the CAT NMS Plan states that ``the reasonably budgeted CAT costs 
shall include . . . public relations costs.'' \197\ In addition, the 
CAT NMS Plan also requires Participants to include in their fee filings 
``a brief description of the amount and type of the Historical CAT 
Costs, including . . . public relations costs.'' \198\ In keeping with 
these provisions, a brief description of reasonable public relations 
costs are described above.
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    \197\ Section 11.1(a)(i) of the CAT NMS Plan.
    \198\ See Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
---------------------------------------------------------------------------

    In addition, CAT LLC determined that the public relations costs 
described above are reasonable in both amount and scope and should be 
recoverable as a part of Historical CAT Assessment 1. The services 
performed by the public relations firms through 2021 were limited in 
scope to assist CAT LLC, which has no employees of its own, to be 
better positioned to understand and address CAT matters to the benefit 
of all market participants and to communicate on important CAT topics 
with the public. In addition, the costs for these services were 
appropriately limited. During the 10-year period covered by Historical 
CAT Assessment 1, the average cost per year for these services was 
approximately $36,000.
(H) Legal Costs Related to the Limitation of Liability Provision in CAT 
Reporter Agreements
    CAT LLC believes that the recovery of legal costs related to the 
limitation of liability provision, including costs related to the 
proceedings before the SEC and costs related to the proposed amendment 
to the Consolidated Audit Trail Reporter Agreement and the Consolidated 
Audit Trail Reporting Agent Agreement (the ``Reporting Agreements'') is 
appropriate and that the amount and scope of such costs as described 
above are reasonable.
    As a preliminary matter, as discussed above, the Commission 
recognized that it is appropriate to recover reasonable costs for legal 
services as a part of Historical CAT Assessments.\199\ In addition, CAT 
LLC determined that the legal costs incurred for the assistance with 
regard to the limitation of liability provisions are reasonable in both 
amount and scope and should be

[[Page 76664]]

recoverable as a part of Historical CAT Assessment 1.
---------------------------------------------------------------------------

    \199\ See Sections 11.1(a)(i) and 11.3(b)(iii)(B)(II) of the CAT 
NMS Plan.
---------------------------------------------------------------------------

    Moreover, it is critical that CAT LLC, which has no employees of 
its own, have the ability to fund a legal defense in litigation and 
other legal proceedings against it. In response to CAT LLC requiring 
Industry Members to agree to the limitation of liability provision to 
submit data to the CAT, SIFMA filed an application for review of 
actions taken by CAT LLC and the Participants pursuant to Sections 
19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing 
of this proceeding, SIFMA moved for a stay of the requirement that 
Industry Members sign a Reporter Agreement, or in the alternative, 
asked the Commission to further delay the launch of CAT reporting on 
June 22, 2020. CAT LLC must have the resources to defend itself from 
litigious actions by others, like these.
    Although a limitation of liability provision ultimately was not 
adopted as proposed, it was a reasonable provision to propose for the 
CAT Reporter Agreements, given that such provisions are in accordance 
with industry norms. Limitations of liability are ubiquitous within the 
securities industry and have long governed the economic relationships 
between self-regulatory organizations and the entities that they 
regulate. For example, U.S. securities exchanges have adopted rules to 
limit their liability for losses that Industry Members incur through 
their use of exchange facilities.\200\ Similarly, FINRA's former order 
audit trail, OATS, which has functioned as an integrated audit trail of 
order, quote, and trade data for equity securities, required FINRA 
members to acknowledge an agreement that includes a limitation of 
liability provision.\201\ In addition, such a provision was intended to 
ensure the financial stability of the CAT. Accordingly, it was 
reasonable for CAT LLC to propose the use of such a provision.\202\
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    \200\ See, e.g., NASDAQ Equities Rule 4626.
    \201\ FINRA Rule 1013(a)(1)(R) requires all applicants for FINRA 
Membership to acknowledge the FINRA Entitlement Program Agreement 
and Terms of Use, which applies to OATS. Industry Members click to 
indicate that they agree to its terms--including its limitation of 
liability provision--every time they access FINRA's OATS system to 
report trade information (i.e., repeatedly over the course of a 
trading day for many Industry Members).
    \202\ See Letter from Michael Simon, Chair, CAT Operating 
Committee, to Vanessa Countryman, Secretary, SEC, dated December 18, 
2020.
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    Furthermore, as described above, the specialized services were 
performed by experienced counsel at market rates for such services. 
Accordingly, the legal costs for the efforts related to the limitation 
of liability provision were reasonable.
(I) Costs for the Chair of CAT Operating Committee
    CAT LLC believes that the recovery of consulting costs related to 
the Chair of the CAT Operating Committee is appropriate and that the 
amount and scope of such costs are reasonable.
    As a preliminary matter, the selection of the Chair of the 
Operating Committee complies with the requirements of Section 4.2 of 
the CAT NMS Plan. The initial Chair that served during the period 
covered by Historical CAT Assessment was designated by a Participant as 
the Participant's alternate voting member. Accordingly, the Chair is a 
representative of the Participants, as required by the CAT NMS Plan.
    In addition, in approving the CAT Funding Model, the Commission 
recognized that it is appropriate to recover reasonable costs for 
consulting as a part of Historical CAT Assessments. As approved by the 
SEC, the CAT NMS Plan states that ``the reasonably budgeted CAT costs 
shall include . . . consulting . . . costs.'' \203\ In addition, the 
CAT NMS Plan also requires Participants to include in their fee filings 
``a brief description of the amount and type of the Historical CAT 
Costs, including . . . consulting . . . costs.'' \204\ In keeping with 
these provisions, a brief description of reasonable consulting costs is 
included in this filing, and such reasonable consulting costs include 
the costs related to the Chair position.
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    \203\ Section 11.1(a)(i) of the CAT NMS Plan.
    \204\ Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
---------------------------------------------------------------------------

    The Participants determined that the position of the Chair was a 
critical role for the implementation of the CAT, and an independent 
Chair would appropriately consider and address the views of each of the 
Participants. The Participants also determined that it was important to 
have a Chair with a strong background regarding issues related to the 
regulatory obligations of self-regulatory organizations, including 
their obligations under national market system plans. The compensation 
paid to the Chair is appropriate for a person with such background and 
skills. The average annual amount paid to the Chair from 2017 through 
the end of FAM 3 was $292,733.30. Separate from the Chair, CAT LLC 
relies upon a Leadership Team of representatives of the SROs to oversee 
the day-to-day implementation of the CAT NMS Plan. CAT LLC does not 
compensate any member of the Leadership Team.
(11) Fee Implementation Assistance for Industry Members
(A) Reconciliation of CAT Invoices
(i) Reconciliation of CAT Invoices to Underlying Trades Provided by CAT
    CAT LLC understands that there are three types of reconciliation 
processes related to the invoices:
    <bullet> Reconciliation of CAT Invoices to Underlying Trades: 
Reconciling the CAT invoice amount to the underlying trades provided by 
CAT;
    <bullet> Matching Trades to Books and Records: Providing the means 
to match the underlying trades provided by CAT with CAT invoices to 
other books and records independently maintained by individual CAT 
Reporters (e.g., exchange trade journals/acknowledgements) and data 
sources of self-regulatory organizations independent of CAT; and
    <bullet> Order Originator Identification: Providing the ability to 
identify the order originator for the underlying trades provided by CAT 
with CAT invoices, which would facilitate firms' ability to pass 
through CAT Fees to their customers.
    As discussed further below, CAT LLC only considers the first type 
of process to be a ``reconciliation'' and the only type of process that 
is required under the CAT NMS Plan. CAT LLC provides the means to 
reconcile the CAT invoice amount to the underlying trades provided by 
CAT.
    The CAT NMS Plan does not require CAT LLC to facilitate the second 
type of process: matching underlying trades for a CAT invoice with a 
firm's internal books and records. CAT LLC has access only to the 
underlying trades provided by CAT; it does not have access to a firm's 
internal books and records. Although beyond the requirements of the CAT 
NMS Plan and involving firm specific considerations, CAT LLC 
voluntarily has provided guidance and processes to assist CAT Reporters 
in their efforts to match the underlying trades with their own books 
and records.
    The CAT NMS Plan also does not require CAT LLC to provide the 
ability to identify the order originator for the underlying trades for 
the CAT invoices. Accordingly, the billing guidance and processes do 
not provide CAT Reporters with the ability to identify the order 
originator for the underlying trades provided by CAT with CAT invoices. 
CAT LLC has been working closely with CAT Reporters to explain its 
billing approach and to address any

[[Page 76665]]

outstanding billing questions. But, it should not be lost that CAT LLC 
provides information sufficient to allow CAT Reporters to reconcile CAT 
invoice amounts with the underlying trades provided by CAT LLC.
(ii) Match the Underlying Trades Provided by CAT With CAT Invoices to 
Firms' Internal Books and Records Independent of CAT
    The CAT NMS Plan does not require CAT LLC to facilitate the 
matching of underlying trades for a CAT invoice with a firm's internal 
books and records, which may consist of trading data from various 
sources external to CAT. Although beyond the requirements of the CAT 
NMS Plan and involving firm specific considerations, CAT LLC 
voluntarily has provided guidance and processes to assist CAT Reporters 
in their efforts to match the underlying trades with their own books 
and records.
    In this regard, it is important to recognize that CAT LLC has 
developed a billing approach that greatly improves upon existing 
billing practices for other regulatory fees (e.g., fees related to 
Section 31). Accordingly, with the additional information voluntarily 
provided by CAT LLC, CAT Reporters generally will have sufficient 
information to match their underlying trades provided by CAT with their 
own internal books and records that are independent of CAT or to SRO 
data that is independent of CAT data. However, CAT LLC emphasizes that 
providing such additional information is not required by the CAT NMS 
Plan.
    To facilitate the introduction of CAT fees, CAT LLC has worked with 
FCAT to develop an approach to CAT billing that is consistent with 
existing billing constructs used with regard to Section 31-related 
sales values fees, subject to certain enhancements. Under this billing 
approach, FCAT is providing additional linkage elements, not 
necessarily provided in the Section 31-sales value fee context, to 
facilitate CAT Reporters' ability to match the underlying trades 
provided by CAT with their internal books and records and to reduce the 
complexity of that process. Specifically, FCAT is providing various key 
elements of the trade itself, such as the tradeID and branch 
sequence,\205\ to CAT Reporters in the trade billing details provided 
with their CAT invoices (``Additional Trade Details''). As a result, 
CAT Reporters now have numerous alternative methods for matching a 
trade with their internal books and records where they previously did 
not have such matching methods in other fee contexts.
---------------------------------------------------------------------------

    \205\ See CAT Technical Specifications for Billing Trade 
Details; Trade Details Schema (https://catnmsplan.com/sites/default/files/2024-02/02.05.24-Billing-Trade-Details-Schema.json); CAT 
Billing Scenarios, Version 1.0 (Nov. 30, 2023), https://www.catnmsplan.com/sites/default/files/2024-01/01.12.2024-CAT-Billing-Scenarios-v1.0.pdf.
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    With the Additional Trade Details, CAT LLC and FCAT believe that 
the overwhelming majority of underlying trades provided by CAT bills 
can be matched with a CAT Reporter's internal books and records. CAT 
LLC recognizes that there may be certain cases in which such matching 
is more difficult given various firm-specific considerations, but 
believes that such instances are significantly more limited than with 
regard to the SRO fees charged in relation to Section 31.\206\ By 
providing Additional Trade Details that are not available in other fee 
contexts, FCAT enhances the Industry Members' ability to match the 
underlying trades provided with CAT invoices with books and records and 
SRO data, both of which are independent of CAT data.
---------------------------------------------------------------------------

    \206\ For years, broker-dealers have faced similar 
reconciliation issues with regard to SRO fees related to Section 31. 
Broker-dealers have responded to this issue in the Section 31 
context by exercising their discretion as to whether and the manner 
and extent to which they pass on those fees (e.g., by rounding 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). See, e.g., Securities Exchange 
Act Release No. 49928 (June 28, 2004), 69 FR 41060, 41072 (July 7, 
2004) (noting that broker-dealers may ``over-collect'' Section 31-
related fees charged to their clients due to rounding practices, and 
double-counting with regard to certain transactions).
---------------------------------------------------------------------------

(iii) CAT LLC is Not Required To Facilitate CAT Reporters' Ability to 
Pass Through Fees to Their Customers
    Similar to other regulatory fees, the CAT NMS Plan does not address 
the manner or extent to which CAT Executing Brokers may seek to pass 
any CAT fees on to their customers, nor does it impose any obligation 
on CAT LLC or the Plan Processor to facilitate firms' ability to do so. 
Accordingly, Historical CAT Assessment 1 does not address the process 
by which any CAT Reporters may pass through the fee to their customers. 
Likewise, the CAT billing approach provided by the Plan Processor is 
designed to address the needs of CAT Reporters with regard to the 
reconciliation of CAT invoices with the underlying trades provided by 
CAT LLC with the invoices; they are not designed to address issues 
related to any pass-through fees. Accordingly, facilitating CAT 
Reporters' ability to pass through fees to their clients is outside the 
scope of this fee filing. Nevertheless, as described below, CAT LLC and 
the Plan Processor have expended significant efforts to provide 
technical assistance to Industry Members regarding the implementation 
of Historical CAT Assessment 1, including providing Additional Trade 
Details that provide significant details about each underlying trade.
(a) Originating Brokers Versus Executing Brokers
    In its approval of the CAT Funding Model, the Commission approved 
charging CAT fees to the CAT Executing Broker, rather than the 
originating broker. This fee filing must comply with the requirements 
of the CAT Funding Model, and, therefore, charges the Historical CAT 
Assessment 1 to CAT Executing Brokers.
    Moreover, charging originating brokers would introduce significant 
complexity to the billing process from the CAT's perspective, and would 
increase the costs of implementing CAT fees. Charging the CAT Executing 
Broker is simple and straightforward, and leverages a one-to-one 
relationship between billable events (trades) and billable parties, 
similar to other transaction-based fees. In contrast, 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. While 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. Furthermore, charging originating brokers 
would implicate issues related to lifecycle linkage rates, and issues 
related to corrections, cancellations and allocations, while charging 
CAT Executing Brokers would avoid such issues.
(b) Identification of Order Originator for Underlying Trades
    As noted, the CAT NMS Plan does not address the manner or extent to 
which CAT Executing Brokers may seek to pass any CAT Fees on to their 
customers, nor does it impose any obligation on CAT LLC or the Plan 
Processor to facilitate firms' ability to do so. Nevertheless, the 
Additional Trade Details provided with regard to the underlying trades 
on CAT invoices may assist with this process. Like with Section 31-
related sales value fees, however, it is not always possible to trace 
every fee on a transaction back to the originating party. However, with 
the Additional Trade Details provided

[[Page 76666]]

under the CAT billing approach, in many cases, CAT Reporters will be 
able to identify the order originator for the underlying trades 
provided by CAT with CAT invoices. In some cases, CAT LLC believes that 
certain issues related to certain types of market activity may 
implicate CAT Reporters' ability to identify the order originator for a 
limited set of underlying trades for the CAT invoices. Although CAT LLC 
does not believe that it is required to address these issues, CAT LLC 
and FCAT have been carefully researching and analyzing these types of 
issues as they are identified, and have been working voluntarily to 
assist CAT Reporters with these issues as necessary and when possible. 
In addition, CAT LLC intends to continue to provide CAT Reporters with 
billing guidance through FAQs, CAT Alerts and Helpdesk responses to 
address outstanding billing questions.
(B) Significant Technical Assistance
    CAT LLC has worked with FCAT to provide significant technical 
assistance to Industry Members to allow the Industry Members to 
understand how Historical CAT Assessment 1 will be implemented and 
billed, including webinars, CAT alerts, mock invoices, and responses to 
questions posed to the FCAT Help Desk.
    <bullet> Technical Specifications and Scenarios. CAT LLC has 
provided detailed technical documentation for CAT billing, including 
(1) technical specifications, which describe the CAT Billing Trade 
Details Files associated with monthly CAT invoices, including detailed 
information about data elements and file formats as well as access 
instructions, network and transport options; \207\ (2) trade details 
schemas; \208\ and (3) CAT billing scenarios.\209\
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    \207\ See CAT Technical Specifications for Billing Trade 
Details, Version 1.0 r1 (December 8. 2023), https://catnmsplan.com/sites/default/files/2023-12/12.07.2023-CAT-Techical-Specifications-for-Billing-Trade-Details-v1.0r1_CLEAN.pdf.
    \208\ See Trade Details Schema, https://catnmsplan.com/sites/default/files/2024-02/02.05.24-Billing-Trade-Details-Schema.json.
    \209\ See CAT Billing Scenarios, Version 1.0 (November 30, 
2023), https://www.catnmsplan.com/sites/default/files/2024-01/01.12.2024-CAT-Billing-Scenarios-v1.0.pdf.
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    <bullet> Industry Webinars. CAT LLC has hosted two industry 
webinars specifically dedicated to CAT billing. The first webinar, 
hosted on September 28, 2023, discussed the operational implementation 
of the CAT Reporter billing process.\210\ The second webinar, hosted on 
November 7, 2023, provided (1) a demonstration of the CAT Reporter 
Portal and how to access CAT billing documents, including CAT invoices; 
and (2) additional information on underlying trade details in relation 
to the CAT Reporter billing process and an overview of the CAT Contact 
Management System.\211\ 485 participants and 394 participants attended 
the two webinars, respectively.
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    \210\ See CAT Billing Webinar, Part 1 (September 28, 2023), 
https://www.catnmsplan.com/events/part-1-cat-billing-webinar.
    \211\ See CAT Billing Webinar, Part 2 (November 7, 2023), 
https://www.catnmsplan.com/events/part-2-cat-billing-webinar.
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    <bullet> CAT Alert. CAT LLC has published a detailed CAT Alert that 
describes how FCAT, as the Plan Processor acting on behalf of CAT LLC, 
will calculate applicable fees, issue invoices to and collect payment 
from CAT Executing Brokers.\212\
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    \212\ See CAT Alert 2023-02 (October 12, 2023) (Updated July 31, 
2024), https://www.catnmsplan.com/sites/default/files/2024-07/07.31.24-CAT-Alert-2023-02.pdf.
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    <bullet> Frequently Asked Questions (FAQs). CAT LLC also has 
continued to engage with the industry on billing issues by making 
responses to billing FAQs available on the CAT website. The FAQs 
address a broad range of frequently asked questions, including, for 
example, which Industry Members will receive invoices, how fees are 
calculated, when and how fees are required to be paid, how to access 
invoices, and how to update the billing contact. To date, responses to 
26 FAQs are available on the CAT website, and CAT LLC will provide 
additional responses to FAQs as warranted.\213\
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    \213\ See CAT Billing FAQs, Section V of CAT FAQs, https://www.catnmsplan.com/faq?search_api_fulltext=&field_topics=271&sort_by=field_faq_number.
---------------------------------------------------------------------------

    <bullet> Mock Invoices. To assist Industry Members with compliance 
with the commencement of Historical CAT Assessment 1, CAT LLC has been 
making available to CAT Executing Brokers mock invoices for Historical 
CAT Assessment 1 since December 2023 for billable activity occurring in 
November 2023. The mock invoices are in the same form as the actual, 
payable invoices, including both the relevant transaction data and the 
corresponding fee (as originally contemplated). However, no payments 
are required in response to such mock invoices; they are to be used 
solely to assist CAT Executing Brokers with the development of their 
processes for paying the CAT fees. Such data provides CAT Executing 
Brokers with a preview of the transaction data used in creating the 
invoices for Historical CAT Assessment 1 fees, as the data will be the 
same as data provided in actual invoices. Such data preview is intended 
to facilitate the payment of Historical CAT Assessment 1. For the 
November, December, and January billing periods, FCAT has generated 
trade detail files for 569 distinct firms that are CAT Executing 
Brokers. As such, CAT Reporters have actively engaged in the billing 
process via the mock invoices.
    <bullet> Help Desk Assistance. CAT LLC also provides detailed, 
individualized assistance to Industry Members regarding CAT fees and 
the billing process through the FCAT Help Desk.\214\ For example, the 
Help Desk has assisted with 406 cases related to the billing of CAT 
fees from July 2023 through March 2024.
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    \214\ The CAT NMS Plan requires that the Plan Processor ``staff 
a CAT help desk, as described in Appendix D, CAT Help Desk, to 
provide technical expertise.'' Section 6.10(c)(vi) of the CAT NMS 
Plan. See also Section 10.3 of Appendix D of the CAT NMS Plan for a 
description of the Plan requirements for the CAT Help Desk.
---------------------------------------------------------------------------

    By providing such detailed and sustained assistance to Industry 
Members regarding CAT fees and billing, CAT LLC has successfully 
addressed questions raised by Industry Members regarding the CAT fees 
and billing processes.
(C) Ample Preparation Time
    CAT LLC has provided Industry Members with ample time to comply 
with the implementation of Historical CAT Assessment 1. CAT LLC 
originally proposed issuing the first invoices for Historical CAT 
Assessment 1 in December 2023 based on transactions in Eligible 
Securities in November 2023. In consideration of the feedback about the 
need for additional time to implement the new fee, CAT LLC pushed back 
this timeline by four months, proposing to issue the first Historical 
CAT Assessment 1 in April 2024 based on transactions in March 
2024.\215\ This filing pushes this timeline back even further for 
implementing Historical CAT Assessment 1, proposing to issue the first 
invoices for Historical CAT Assessment 1 in November 2024 based on 
transactions in Eligible Securities in October 2024. Moreover, as 
discussed above, during these additional months, FCAT has been working 
closely with Industry Members to provide guidance regarding their mock 
bills and reconciliation efforts related thereto.
---------------------------------------------------------------------------

    \215\ See supra note 19.
---------------------------------------------------------------------------

    FINRA has filed the proposed rule change for immediate 
effectiveness.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\216\ which requires, among 
other things, that

[[Page 76667]]

FINRA rules must be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
and, in general, to protect investors and the public interest, and not 
designed to permit unfair discrimination between customers, issuers, 
brokers and dealers. FINRA also believes that the proposed rule change 
is consistent with the provisions of Section 15A(b)(5) of the Act,\217\ 
which requires, among other things, that FINRA rules provide for the 
equitable allocation of reasonable dues, fees and other charges among 
members and issuers and other persons using any facility or system that 
FINRA operates or controls. FINRA further believes that the proposed 
rule change is consistent with Section 15A(b)(9) of the Act,\218\ which 
requires that FINRA rules not impose any burden on competition that is 
not necessary or appropriate. Section 15A(b)(2) of the Act also 
requires that FINRA be ``so organized and [have] the capacity to be 
able to carry out the purposes'' of the Act and ``to comply, and . . . 
to enforce compliance by its members, and persons associated with its 
members,'' with the provisions of the Exchange Act.\219\
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    \216\ 15 U.S.C. 78o-3(b)(6).
    \217\ 15 U.S.C. 78o-3(b)(5).
    \218\ 15 U.S.C. 78o-3(b)(9).
    \219\ See 15 U.S.C. 78o-3(b)(2).
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    FINRA believes that this proposed rule change is consistent with 
the Act because it implements provisions of the Plan and is designed to 
assist FINRA in meeting regulatory obligations pursuant to the Plan. In 
approving the Plan, the SEC noted that the Plan ``is necessary and 
appropriate in the public interest, for the protection of investors and 
the maintenance of fair and orderly markets, to remove impediments to, 
and perfect the mechanism of a national market system, or is otherwise 
in furtherance of the purposes of the Act.'' \220\ To the extent that 
this proposed rule change implements the Plan and applies specific 
requirements to Industry Members, FINRA believes that this proposed 
rule change furthers the objectives of the Plan, as identified by the 
SEC, and is therefore consistent with the Act.
---------------------------------------------------------------------------

    \220\ See CAT NMS Plan Approval Order, 81 FR 84696, 84697.
---------------------------------------------------------------------------

    FINRA also believes that the proposed fees to be paid by the CEBBs 
and CEBSs are reasonable, equitably allocated and not unfairly 
discriminatory. FINRA has already incurred development and 
implementation costs and the proposed Historical CAT Assessment 1 fees, 
therefore, would allow FINRA to collect certain of such costs in a fair 
and reasonable manner from Industry Members, as contemplated by the CAT 
NMS Plan.
    The proposed Historical CAT Assessment 1 fees would be charged to 
Industry Members in support of the maintenance of a consolidated audit 
trail for regulatory purposes. The proposed fees, therefore, are 
consistent with the Commission's view that regulatory fees be used for 
regulatory purposes. The proposed fees would not cover FINRA services 
unrelated to the CAT. In addition, any surplus would be used as a 
reserve to offset future fees.
    As further discussed below, the SEC approved the CAT Funding Model, 
finding it was reasonable and that it equitably allocates fees among 
Participants and Industry Members. Thus, FINRA believes that the 
proposed fees adopted pursuant to the CAT Funding Model approved by the 
SEC are reasonable, equitably allocated and not unfairly 
discriminatory.
(1) Implementation of CAT Funding Model in CAT NMS Plan
    Section 11.1(b) of the CAT NMS Plan states that ``[t]he 
Participants shall file with the SEC under Section 19(b) of the 
Exchange Act any such fees on Industry Members that the Operating 
Committee approves.'' Per Section 11.1(b) of the CAT NMS Plan, FINRA 
has filed this fee filing to implement the Industry Member CAT fees 
included in the CAT Funding Model. FINRA believes that this proposed 
rule change is consistent with the Exchange Act because it is 
consistent with, and implements, the CAT Funding Model in the CAT NMS 
Plan, and is designed to assist FINRA and its Industry Members in 
meeting regulatory obligations pursuant to the CAT NMS Plan. In 
approving the CAT NMS Plan, the SEC noted that the Plan ``is necessary 
and appropriate in the public interest, for the protection of investors 
and the maintenance of fair and orderly markets, to remove impediments 
to, and perfect the mechanism of a national market system, or is 
otherwise in furtherance of the purposes of the Act.'' \221\ Similarly, 
in approving the CAT Funding Model, the SEC concluded that the CAT 
Funding Model met this standard.\222\ As this proposed rule change 
implements the Plan and the CAT Funding Model described therein, and 
applies specific requirements to Industry Members in compliance with 
the Plan, FINRA believes that this proposed rule change furthers the 
objectives of the Plan, as identified by the SEC, and is therefore 
consistent with the Exchange Act.
---------------------------------------------------------------------------

    \221\ See supra note 220.
    \222\ See CAT Funding Model Approval Order, 88 FR 62628, 62686.
---------------------------------------------------------------------------

(2) Calculation of Fee Rate for Historical CAT Assessment 1 Is 
Reasonable
    The SEC has determined that the CAT Funding Model is reasonable and 
satisfies the requirements of the Exchange Act. Specifically, the SEC 
has concluded that the method for determining Historical CAT 
Assessments as set forth in Section 11.3 of the CAT NMS Plan, including 
the formula for calculating the Historical Fee Rate, the identification 
of the parties responsible for payment and the transactions subject to 
the fee rate for the Historical CAT Assessment, is reasonable and 
satisfies the Exchange Act.\223\ In each respect, as discussed above, 
Historical CAT Assessment 1 is calculated, and would be applied, in 
accordance with the requirements applicable to Historical CAT 
Assessments as set forth in the CAT NMS Plan and, therefore, is 
reasonable and consistent with the Exchange Act. Calculation of the 
Historical Fee Rate for Historical CAT Assessment 1 requires the 
figures for the Historical CAT Costs 1, the executed equivalent share 
volume for the prior twelve months, the determination of Historical 
Recovery Period 1, and the projection of the executed equivalent share 
volume for Historical Recovery Period 1. Each of these variables is 
reasonable and satisfies the Exchange Act, as discussed throughout this 
filing.
---------------------------------------------------------------------------

    \223\ See CAT Funding Model Approval Order, 88 FR 62628, 62662-
63.
---------------------------------------------------------------------------

(A) Historical CAT Costs 1
    The formula for calculating a Historical Fee Rate requires the 
amount of Historical CAT Costs to be recovered. Specifically, Section 
11.3(b)(iii)(B)(II) of the CAT NMS Plan requires a fee filing to 
provide:

a brief description of the amount and type of the 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.

    In accordance with this requirement, FINRA has set forth the amount 
and type of Historical CAT Costs 1 for each of the categories of costs 
above.
    Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan also requires that 
the fee filing provide ``sufficient detail to demonstrate that the 
Historical CAT Costs are reasonable and appropriate.'' As discussed 
below, FINRA believes

[[Page 76668]]

that the amounts set forth in this filing for each of these cost 
categories is ``reasonable and appropriate.'' Each of the costs 
included in Historical CAT Costs 1 are reasonable and appropriate 
because the costs are consistent with standard industry practice, based 
on the need to comply with the requirements of the CAT NMS Plan, 
incurred subject to negotiations performed on an arm's length basis, 
and/or are consistent with the needs of any legal entity, particularly 
one with no employees.
(i) Technology: Cloud Hosting Services
    In approving the CAT Funding Model, the Commission recognized that 
it is appropriate to recover costs related to cloud hosting services as 
a part of Historical CAT Assessments.\224\ CAT LLC determined that the 
costs related to cloud hosting services described in this filing are 
reasonable and should be included as a part of Historical CAT Costs 1. 
As described above, the cloud hosting services costs reflect, among 
other things, the breadth of the CAT cloud activities, data volume far 
in excess of the original volume estimates, the need for specialized 
cloud services given the volume and unique nature of the CAT, the 
processing time requirements of the Plan, and regular efforts to seek 
to minimize costs where permissible under the Plan. CAT LLC determined 
that use of cloud hosting services is necessary for implementation of 
the CAT, particularly given the substantial data volumes associated 
with the CAT, and that the fees for cloud hosting services negotiated 
by FCAT were reasonable, taking into consideration a variety of 
factors, including the expected volume of data and the breadth of 
services provided and market rates for similar services.\225\ Indeed, 
the actual costs of the CAT are far in excess of the original estimated 
costs of the CAT due to various factors, including the higher volumes 
and greater complexity of the CAT than anticipated when Rule 613 was 
originally adopted.
---------------------------------------------------------------------------

    \224\ Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan.
    \225\ For a discussion of the amount and type of cloud hosting 
services fees, see Items II.A.1.(2)(B)(i)(a), II.A.1.(2)(B)(ii)(a), 
II.A.1.(2)(B)(iii)(a) and II.A.1.(2)(B)(iv)(A) above.
---------------------------------------------------------------------------

    To comply with the requirements of the Plan, the breadth of the 
cloud activities related to the CAT is substantial. The cloud services 
not only include the production environment for the CAT, but they also 
include two industry testing environments, support environments for 
quality assurance and stress testing and disaster recovery 
capabilities. Moreover, the cloud storage costs are driven by the 
requirements of the Plan, which requires the storage of multiple 
versions of the data, from the original submitted version of the data 
through various processing steps, to the final version of the data.
    Data volume is a significant driver of costs for cloud hosting 
services. When the Commission adopted the CAT NMS Plan in 2016, it 
estimated that the CAT would need to receive 58 billion records per day 
\226\ and that annual operating costs for the CAT would range from 
$36.5 million to $55 million.\227\ Through 2021, the actual data 
volumes have been five times that original estimate. The data volumes 
for each period are set forth in detail above.\228\
---------------------------------------------------------------------------

    \226\ See CAT NMS Plan, Appendix D-4 n.262.
    \227\ See CAT NMS Plan Approval Order, 81 FR 84696, 84801.
    \228\ See Items II.A.1.(2)(B)(i)(a), II.A.1.(2)(B)(ii)(a), 
II.A.1.(2)(B)(iii)(a) and II.A.1.(2)(B)(iv)(A) above.
---------------------------------------------------------------------------

    In addition to the effect of the data volume on the cloud hosting 
costs, the processing timelines set forth in the Plan contribute to the 
cloud hosting costs. Although CAT LLC has proactively sought to manage 
cloud hosting costs while complying with the Plan, including through 
requests to the Commission for exemptive relief and an amendment to the 
CAT NMS Plan, stringent CAT NMS Plan requirements do not allow for any 
material flexibility in cloud architecture design choices, processing 
timelines (e.g., the use of non-peak processing windows), or lower-cost 
storage tiers. As a result, the required CAT processing timelines 
contribute to the cloud hosting costs of the CAT.
    The costs for cloud hosting services also reflect the need for 
specialized cloud hosting services given the data volume and unique 
processing needs of the CAT. The data volume as well as the data 
processing needs of the CAT necessitate the use of cloud hosting 
services. The equipment, power and services required for an on-premises 
data model, the alternative to cloud hosting services, would be cost 
prohibitive. Moreover, as CAT was being developed, there were limited 
cloud hosting providers that could satisfy all the necessary CAT 
requirements, including the operational and security criteria. Over 
time more providers offering cloud hosting services that would satisfy 
these criteria have entered the market. CAT LLC will continue to 
evaluate alternative cloud hosting services, recognizing that the time 
and cost to move to an alternative cloud provider would be substantial.
    The reasonableness of the cloud hosting services costs is further 
supported by key cost discipline mechanisms for the CAT -cost 
transparency, cost management efforts (including regular efforts to 
lower compute and storage costs where permitted by the Plan) and 
oversight. Together, these mechanisms help ensure the ongoing 
reasonableness of the CAT's costs and the level of fees assessed to 
support those costs.\229\
---------------------------------------------------------------------------

    \229\ See Securities Exchange Act Release No. 97151 (March 15, 
2023), 88 FR 17086, 17117 (March 21, 2023) (describing key cost 
discipline mechanisms for the CAT).
---------------------------------------------------------------------------

(ii) Technology: Operating Fees
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to operating fees as a part of 
Historical CAT Assessments.\230\ CAT LLC determined that the costs 
related to the operating fees described in this filing are reasonable 
and should be included as a part of Historical CAT Costs 1. The 
operating fees include the negotiated fees paid by CAT LLC to the Plan 
Processor to operate and maintain the system for order-related 
information and to perform business operations related to the system, 
including compliance, security, testing, training, communications with 
the industry (e.g., management of the FINRA CAT Helpdesk, FAQs, website 
and webinars) and program management. CAT LLC determined that the 
selection of FCAT as the Plan Processor was reasonable and appropriate 
given its expertise with securities regulatory reporting, after a 
process of considering other potential candidates.\231\ CAT LLC also 
determined that the fixed price contract, negotiated on an arm's length 
basis with the goals of managing costs and receiving services required 
to comply with the CAT NMS Plan and Rule 613, was reasonable and 
appropriate, taking into consideration a variety of factors, including 
the breadth of services provided and market rates for similar types of 
activity.\232\ The services performed by FCAT for each period and the 
costs related to such services are described above.\233\
---------------------------------------------------------------------------

    \230\ Section 11.3(b)(iii)(B)(II)(1) of the CAT NMS Plan.
    \231\ See Item II.A.1.(2)(B)(i)(b) above.
    \232\ See Items II.A.1.(2)(B)(i)(b), II.A.1.(2)(B)(ii)(b), 
II.A.1.(2)(B)(iii)(b) and II.A.1.(2)(B)(iv)(b) above.
    \233\ See supra note 232.
---------------------------------------------------------------------------

(iii) Technology: CAIS Operating Fees
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to CAIS operating fees as a part 
of Historical CAT Assessments.\234\ CAT LLC

[[Page 76669]]

determined that the costs related to CAIS operating fees described in 
this filing are reasonable and should be included as a part of 
Historical CAT Costs 1. The CAIS operating fees include the fees paid 
to the Plan Processor to operate and maintain CAIS and to perform the 
business operations related to the system, including compliance, 
security, testing, training, communications with the industry (e.g., 
management of the FINRA CAT Helpdesk, FAQs, website and webinars) and 
program management. CAT LLC determined that the FCAT-negotiated fees 
for Kingland's CAIS-related services, negotiated on an arm's length 
basis with the goals of managing costs and receiving services required 
to comply with the CAT NMS Plan, taking into consideration a variety of 
factors, including the services to be provided and market rates for 
similar types of activity, were reasonable and appropriate.\235\ The 
services performed by Kingland for each period and the costs for each 
period are described above.\236\
---------------------------------------------------------------------------

    \234\ Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan.
    \235\ See Items II.A.1.(2)(B)(i)(c), II.A.1.(2)(B)(ii)(c), 
II.A.1.(2)(B)(iii)(c) and II.A.1.(2)(B)(iv)(c) above.
    \236\ See supra note 235.
---------------------------------------------------------------------------

(iv) Technology: Change Request Fees
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to change request fees as a part 
of Historical CAT Assessments.\237\ CAT LLC determined that the costs 
related to change request fees described in this filing are reasonable 
and should be included as a part of Historical CAT Costs 1. It is 
common practice to utilize a change request process to address evolving 
needs in technology projects. This is particularly true for a project 
like CAT that is the first of its kind, both in substance and in scale. 
The substance and costs of each of the change requests are evaluated by 
the Operating Committee, and approved in accordance with the 
requirements for Operating Committee meetings. In each case, CAT LLC 
determined that the change requests were necessary to implement the 
CAT. As described above, the change requests cover various technology 
changes, including, for example, changes related to CAT reporting, data 
feeds and exchange functionality. CAT LLC also determined that the 
costs for each change request were appropriate for the relevant 
technology change. A description of the change requests for each FAM 
Period and their total costs are described above.\238\ As noted above, 
the total costs for change requests through FAM Period 3 represent a 
small percentage of Historical CAT Costs 1--that is, 0.25% of 
Historical CAT Costs 1.
---------------------------------------------------------------------------

    \237\ Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan.
    \238\ See Items II.A.1.(2)(B)(i)(d), II.A.1.(2)(B)(ii)(d), 
II.A.1.(2)(B)(iii)(d) and II.A.1.(2)(B)(iv)(d) above.
---------------------------------------------------------------------------

(v) Capitalized Developed Technology Costs
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to capitalized developed 
technology costs as a part of Historical CAT Assessments.\239\ 
Capitalized developed technology costs include costs related to certain 
development costs, costs related to certain modifications, upgrades and 
other changes to the CAT, CAIS implementation fees and license fees. 
The amount and type of costs for each period are described in more 
detail above.\240\ CAT LLC determined that these costs are reasonable 
and should be included as a part of Historical CAT Costs 1.
---------------------------------------------------------------------------

    \239\ Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan.
    \240\ See Items II.A.1.(2)(B)(i)(e), II.A.1.(2)(B)(ii)(e), 
II.A.1.(2)(B)(iii)(e) and II.A.1.(2)(B)(iv)(e) above.
---------------------------------------------------------------------------

    These costs involve the activity of both the Initial Plan Processor 
and FCAT, as the successor Plan Processor.\241\ With regard to the 
Initial Plan Processor, the Participants utilized an RFP to seek 
proposals to build and operate the CAT, receiving a number of proposals 
in response to the RFP. The Participants carefully reviewed and 
considered each of the proposals, including holding in-person meetings 
with each of the Bidders. After several rounds of review, the 
Participants selected the Initial Plan Processor in accordance with the 
CAT NMS Plan. CAT LLC entered into an agreement with the Initial Plan 
Processor in which CAT LLC would pay the Initial Plan Processor a 
negotiated, fixed price fee.\242\ In addition, as described above, CAT 
LLC determined that is was appropriate to enter into an agreement with 
FCAT as the successor Plan Processor.\243\
---------------------------------------------------------------------------

    \241\ See supra note 240.
    \242\ See Item II.A.1.(2)(B)(i)(e) above.
    \243\ See Item II.A.1.(2)(B)(i)(b) above.
---------------------------------------------------------------------------

(vi) Legal
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to legal fees as a part of 
Historical CAT Assessments.\244\ CAT LLC determined that the legal 
costs described in this filing are reasonable and should be included as 
a part of Historical CAT Costs 1. Given the unique nature of the CAT, 
the number of parties involved with the CAT (including, for example, 
the SEC, Participants, Industry Members, and vendors) and the many 
regulatory issues associated with the CAT, the scope of the necessary 
legal services are substantial. CAT LLC determined that the scope of 
the legal services is necessary to implement and maintain the CAT and 
that the legal rates reflect the specialized services necessary for 
such a project. When hiring each law firm for a CAT project, CAT LLC 
interviewed multiple firms, and determined to hire each firm based on a 
variety of factors, including the relevant expertise and fees. In each 
case, CAT LLC determined that the hourly fee rates were in line with 
market rates for the specialized legal expertise. In addition, CAT LLC 
determined that the total costs incurred for each CAT project were 
appropriate given the breadth of services provided. The services 
performed by each law firm for each period and the costs related to 
such services are described above.\245\
---------------------------------------------------------------------------

    \244\ Section 11.3(b)(iii)(B)(II)(B)(2) of the CAT NMS Plan.
    \245\ See Items II.A.1.(2)(B)(i)(f), II.A.1.(2)(B)(ii)(f), 
II.A.1.(2)(B)(iii)(f) and II.A.1.(2)(B)(iv)(f) above.
---------------------------------------------------------------------------

(vii) Consulting
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover consulting costs as a part of Historical CAT 
Assessments.\246\ CAT LLC determined that the consulting costs 
described in this filing are reasonable and should be included as a 
part of Historical CAT Costs 1. Because there are no CAT employees 
\247\ and because of the significant number of issues associated with 
the CAT, the consultants provided assistance in the management of 
various CAT matters and the processes related to such matters.\248\ CAT 
LLC considered a variety of factors in choosing a consulting firm and 
determined to select Deloitte after an interview process.\249\ CAT LLC 
also determined that the consulting services were provided at 
reasonable market rates, as the fees were negotiated annually and 
comparable to the rates charged by other consulting

[[Page 76670]]

firms for similar work.\250\ Moreover, the total costs for such 
consulting services were appropriate in light of the breadth of 
services provided by Deloitte. The services performed by Deloitte and 
the costs related to such services are described above.\251\
---------------------------------------------------------------------------

    \246\ Section 11.3(b)(iii)(B)(II)(B)(3) of the CAT NMS Plan.
    \247\ As stated in the filing of the proposed CAT NMS Plan, 
``[i]t is the intent of the Participants that the Company have no 
employees.'' See Securities Exchange Act Release No. 77724 (April 
27, 2016), 81 FR 30614, 30621 (May 17, 2016).
    \248\ CAT LLC uses certain third parties to perform tasks that 
may be performed by administrators for other NMS Plans. See, e.g., 
CTA Plan and CQ Plan.
    \249\ See Item II.A.1.(2)(B)(i)(g) above.
    \250\ See Items II.A.1.(2)(B)(i)(g), II.A.1.(2)(B)(ii)(g), 
II.A.1.(2)(B)(iii)(g) and II.A.1.(2)(B)(iv)(g) above.
    \251\ See supra note 250.
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(viii) Insurance
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover insurance costs as a part of Historical CAT 
Assessments.\252\ CAT LLC determined that the insurance costs described 
in this filing are reasonable and should be included as a part of 
Historical CAT Costs 1. CAT LLC determined that it is common practice 
to have directors' and officers' liability insurance, and errors and 
omissions liability insurance. CAT LLC further determined that it was 
important to have cyber security insurance given the nature of the CAT, 
and such a decision is consistent with the CAT NMS Plan, which states 
that the cyber incident response plan may include ``[i]nsurance against 
security breaches.'' \253\ In selecting the insurance providers for 
these policies, CAT LLC engaged in an evaluation of alternative 
insurers, including a comparison of the pricing offered by the 
alternative insurers.\254\ Based on this analysis, CAT LLC determined 
that the selected insurance policies provided appropriate coverage at 
reasonable market rates.\255\
---------------------------------------------------------------------------

    \252\ Section 11.3(b)(iii)(B)(II)(B)(4) of the CAT NMS Plan.
    \253\ Section 4.1.5 of Appendix D of the CAT NMS Plan.
    \254\ See Items II.A.1.(2)(B)(i)(h), II.A.1.(2)(B)(ii)(h), 
II.A.1.(2)(B)(iii)(h) and II.A.1.(2)(B)(iv)(h) above.
    \255\ See supra note 254.
---------------------------------------------------------------------------

(ix) Professional and Administration
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover professional and administration costs as a part 
of Historical CAT Assessments.\256\ CAT LLC determined that the 
professional and administration costs described in this filing are 
reasonable and should be included as a part of Historical CAT Costs 1. 
Because there are no CAT employees, all required accounting, financial, 
tax, cash management and treasury functions for CAT LLC have been 
outsourced at market rates. In addition, the required annual financial 
statement audit of CAT LLC is included in professional and 
administration costs, which costs are also at market rates.
---------------------------------------------------------------------------

    \256\ See Section 11.3(b)(iii)(B)(II)(B)(5) of the CAT NMS Plan.
---------------------------------------------------------------------------

    CAT LLC determined to hire a financial advisory firm, Anchin, to 
assist with financial matters for the CAT. CAT LLC interviewed Anchin 
as well as other potential financial advisory firms to assist with the 
CAT project, considering a variety of factors in its analysis, 
including the firm's relevant expertise and fees.\257\ The hourly fee 
rates for this firm were in line with market rates for the financial 
advisory services provided.\258\ Moreover, the total costs for such 
financial advisory services was appropriate in light of the breadth of 
services provided by Anchin. The services performed by Anchin and the 
costs related to such services are described above.\259\
---------------------------------------------------------------------------

    \257\ See Item II.A.1.(2)(B)(i)(i) above.
    \258\ See Items II.A.1.(2)(B)(i)(i), II.A.1.(2)(B)(ii)(i), 
II.A.1.(2)(B)(iii)(i) and II.A.1.(2)(B)(iv)(i) above.
    \259\ See supra note 258.
---------------------------------------------------------------------------

    CAT LLC also determined to engage an independent accounting firm, 
Grant Thornton, to complete the audit of CAT LLC's financial 
statements, in accordance with the requirements of the CAT NMS Plan. 
CAT LLC interviewed this firm as well as another potential accounting 
firm to audit CAT LLC's financial statements, considering a variety of 
factors in its analysis, including the relevant expertise and fees of 
each of the firms. CAT LLC determined that Grant Thornton was well-
qualified for the role given the balance of these considerations.\260\ 
Grant Thornton's fixed fee rate compensation arrangement was reasonable 
and appropriate, and in line with the market rates charged for these 
types of accounting services.\261\ Moreover, the total costs for such 
financial advisory services was appropriate in light of the breadth of 
services provided by Grant Thornton. The services performed by Grant 
Thornton and the costs related to such services are described 
above.\262\
---------------------------------------------------------------------------

    \260\ See Item II.A.1.(2)(B)(i)(i) above.
    \261\ See Items II.A.1.(2)(B)(i)(i), II.A.1.(2)(B)(ii)(i), 
II.A.1.(2)(B)(iii)(i) and II.A.1.(2)(B)(iv)(i) above.
    \262\ See supra note 261.
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    The professional and administrative costs also include costs 
related to the receipt of certain market data from Exegy. After 
performing an analysis of the available market data vendors to confirm 
that the data provided met the SIP Data requirements of the CAT NMS 
Plan and comparing the costs of the vendors providing the required SIP 
Data, CAT LLC determined to purchase market data from Exegy. Exegy 
provided the data elements required by the CAT NMS Plan, and the fees 
were reasonable and in line with market rates for the market data 
received.\263\
---------------------------------------------------------------------------

    \263\ See Item II.A.1.(2)(B)(i)(i) above.
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    The professional and administrative costs also include costs 
related to a third-party security assessment of the CAT performed by 
RSM. The assessment was designed to verify and validate the effective 
design, implementation, and operation of the controls specified by NIST 
Special Publication 800-53, Revision 4 and related standards and 
guidelines. Such a security assessment is in line with industry 
practice and important given the data included in the CAT. CAT LLC 
determined to engage RSM to perform the security assessment, after 
considering a variety of factors in its analysis, including the firm's 
relevant expertise and fees. The fees were reasonable and in line with 
market rates for such an assessment.\264\
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    \264\ See supra note 263.
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(x) Public Relations Costs
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover public relations costs as a part of Historical 
CAT Assessments.\265\ CAT LLC determined that the public relations 
costs described in this filing are reasonable and should be included as 
a part of Historical CAT Costs 1. CAT LLC determined that the types of 
public relations services utilized were beneficial to the CAT and 
market participants more generally. Public relations services were 
important for various reasons, including monitoring comments made by 
market participants about CAT and understanding issues related to the 
CAT discussed on the public record.\266\ By engaging a public relations 
firm, CAT LLC was better positioned to understand and address CAT 
issues to the benefit of all market participants.\267\ Moreover, CAT 
LLC determined that the rates charged for such services were in line 
with market rates.\268\ As noted above, the total public relations 
costs through FAM Period 3 represent a small percentage of Historical 
CAT Costs 1--that is, 0.1% of Historical CAT Costs 1.
---------------------------------------------------------------------------

    \265\ Section 11.3(b)(iii)(B)(II)(B)(6) of the CAT NMS Plan.
    \266\ See Item II.A.1.(2)(B)(i)(j) above.
    \267\ See Items II.A.1.(2)(B)(i)(j), II.A.1.(2)(B)(ii)(j), 
II.A.1.(2)(B)(iii)(j) and II.A.1.(2)(B)(iv)(j) above.
    \268\ See supra note 267.
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(B) Total Executed Equivalent Share Volume for the Prior 12 Months
    The total executed equivalent share volume of transactions in 
Eligible Securities for the 12-month period from June 2023 through May 
2024 was 3,980,753,840,905.21 executed

[[Page 76671]]

equivalent shares. CAT LLC determined the total executed equivalent 
share volume for the prior twelve months by counting executed 
equivalent shares in the same manner as it will count executed 
equivalent shares for CAT billing purposes.
(C) Historical Recovery Period 1
    CAT LLC has determined to establish a Historical Recovery Period of 
24 months for Historical CAT Assessment 1 and that such length is 
reasonable. CAT LLC determined that the length of Historical Recovery 
Period 1 appropriately weighs the need for a reasonable Historical Fee 
Rate 1 that spreads the Historical CAT Costs over an appropriate amount 
of time and the need to repay the loans notes to the Participants in a 
timely fashion. CAT LLC determined that 24 months for Historical 
Recovery Period 1 would establish a fee rate that is lower than other 
transaction-based fees, including fees assessed pursuant to Section 
31.\269\ In addition, in establishing a Historical Recovery Period of 
24 months, CAT LLC recognized that the total costs for Historical CAT 
Assessment 1 was less than the total costs for 2022 and 2023, and 
therefore it would be appropriate to recover those costs in two years.
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    \269\ As the SEC noted in the CAT Funding Model Approval Order, 
recent Section 31 fees ranged from $0.00009 per share to $0.0004 per 
share. CAT Funding Model Approval Order, 88 FR 62628, 62682.
---------------------------------------------------------------------------

(D) Projected Executed Equivalent Share Volume for Historical Recovery 
Period 1
    CAT LLC has determined to calculate the projected total executed 
equivalent share volume for the 24 months of Historical Recovery Period 
1 by doubling the executed equivalent share volume for the prior 12 
months. CAT LLC determined that such an approach was reasonable as the 
CAT's annual executed equivalent share volume has remained relatively 
constant in recent years. For example, the executed equivalent share 
volume for 2021 was 3,963,697,612,395, the executed equivalent share 
volume for 2022 was 4,039,821,841,560.31, and the executed equivalent 
share volume for 2023 was 3,868,940,345,680.6. Accordingly, the 
projected total executed equivalent share volume for Historical 
Recovery Period 1 is projected to be 7,961,507,681,810.42 executed 
equivalent shares.\270\
---------------------------------------------------------------------------

    \270\ This projection was calculated by multiplying 
3,980,753,840,905.21 executed equivalent shares by two.
---------------------------------------------------------------------------

(E) Actual Fee Rate for Historical CAT Assessment 1
(i) Decimal Places
    As noted in the Plan amendment for the CAT Funding Model, as a 
practical matter, the fee filing for a Historical CAT Assessment would 
provide the exact fee per executed equivalent share to be paid for each 
Historical CAT Assessment, by multiplying the Historical Fee Rate by 
one-third and describing the relevant number of decimal places for the 
fee rate.\271\ Accordingly, proposed paragraph (a)(1)(A)(ii) of Rule 
6897 would set forth a fee rate of $0.000013 per executed equivalent 
share. This fee rate is calculated by multiplying Historical Fee Rate 1 
by one-third, and rounding the result to 6 decimal places. CAT LLC 
determined that the use of six decimal places is reasonable as it 
balances the accuracy of the calculation with the potential systems and 
other impracticalities of using additional decimal places in the 
calculation.
---------------------------------------------------------------------------

    \271\ See CAT Funding Model Approval Order, 88 FR 62628, 62658 
n.658.
---------------------------------------------------------------------------

(ii) Reasonable Fee Level
    FINRA believes that imposing Historical CAT Assessment 1 with a fee 
rate of $0.000013 per executed equivalent share is reasonable because 
it provides for a revenue stream for the Company that is aligned with 
Historical CAT Costs 1 and such costs would be spread out over an 
appropriate recovery period, as discussed above. Moreover, FINRA 
believes that the level of the fee rate is reasonable in that it is 
calculated in accordance with the SEC-approved CAT Funding Model. 
Historical CAT Assessment 1 is significantly lower than fees assessed 
pursuant to Section 31 (e.g., $0.0009 per share to 0.0004 per 
share),\272\ and, as a result, the magnitude of Historical CAT 
Assessment 1 is small, and therefore will mitigate any potential 
adverse economic effects or inefficiencies.\273\ Furthermore, the 
reasonable fee rate for Historical CAT Assessment 1 further supports 
CAT LLC's decision to seek to recover all Historical CAT Costs prior to 
2022, rather than establishing separate Historical CAT Assessments for 
pre-FAM, FAM 1, FAM 2 and FAM 3 costs.
---------------------------------------------------------------------------

    \272\ See CAT Funding Model Approval Order, 88 FR 62628, 62663, 
62682.
    \273\ See supra note 272.
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(3) Historical CAT Assessment 1 Provides for an Equitable Allocation of 
Fees
    Historical CAT Assessment 1 provides for an equitable allocation of 
fees, as it equitably allocates CAT costs between and among the 
Participants and Industry Members, in accordance with the SEC-approved 
CAT Funding Model. The SEC approved the CAT Funding Model, finding that 
each aspect of the CAT Funding Model satisfied the requirements of the 
Exchange Act, including the formula for calculating Historical CAT 
Assessments as well as the Industry Members to be charged the 
Historical CAT Assessments.\274\ In approving the CAT Funding Model, 
the SEC stated that ``[t]he Participants have sufficiently demonstrated 
that the proposed allocation of fees is reasonable.'' \275\ 
Accordingly, the CAT Funding Model sets forth the requirements for 
allocating fees related to Historical CAT Costs among Participants and 
Industry Members, and the fee filings for Historical CAT Assessments 
must comply with those requirements.
---------------------------------------------------------------------------

    \274\ See Section 11.3(b) of the CAT NMS Plan.
    \275\ CAT Funding Model Approval Order, 88 FR 62628, 62629.
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    Historical CAT Assessment 1 provides for an equitable allocation of 
fees as it complies with the requirements regarding the calculation of 
Historical CAT Assessments as set forth in the CAT NMS Plan. For 
example, as described above, the calculation of Historical CAT 
Assessment 1 complies with the formula set forth in Section 11.3(b) of 
the CAT NMS Plan. In addition, Historical CAT Assessment 1 would be 
charged to CEBBs and CEBSs in accordance with Section 11.3(b) of the 
CAT NMS Plan. Furthermore, the Participants would continue to remain 
responsible for their designated share of Past CAT Costs through the 
cancellation of loans made by the Participants to CAT LLC.
    In addition, as discussed above, each of the inputs into the 
calculation of Historical CAT Assessment 1--Historical CAT Costs 1 
(including Excluded Costs), the count for the executed equivalent share 
volume for the prior 12 months, the length of the Historical Recovery 
Period, and the projected executed equivalent share volume for the 
Historical Recovery Period--are reasonable. Moreover, these inputs lead 
to a fee rate for Historical CAT Assessment 1 that is reasonable as it 
is consistent with the SEC-approved CAT Funding Model and is lower than 
other fee rates for transaction-based fees. A reasonable fee rate 
allocated in accordance with the requirements of the CAT Funding Model 
provides for an equitable allocation of fees.

[[Page 76672]]

(4) Historical CAT Assessment 1 Is Not Unfairly Discriminatory
    Historical CAT Assessment 1 is not an unfairly discriminatory fee. 
The SEC approved the CAT Funding Model, finding that each aspect of the 
CAT Funding Model satisfied the requirements of the Exchange Act. In 
reaching this conclusion, the SEC analyzed the potential effect of 
Historical CAT Assessments calculated pursuant to the CAT Funding Model 
on affected categories of market participants, including Participants 
(including exchanges and FINRA), Industry Members (including 
subcategories of Industry Members, such as alternative trading systems, 
CAT Executing Brokers and market makers), and investors generally, and 
considered market effects related to equities and options, among other 
things. Historical CAT Assessment 1 complies with the requirements 
regarding the calculation of Historical CAT Assessments as set forth in 
the CAT NMS Plan. In addition, as discussed above, each of the inputs 
into the calculation of Historical CAT Assessment 1 and the resulting 
fee rate for Historical CAT Assessment 1 is reasonable, consistent with 
the SEC-approved CAT Funding Model. Therefore, Historical CAT 
Assessment 1 does not impose an unfairly discriminatory fee on Industry 
Members.
    FINRA believes the proposed fees established pursuant to the CAT 
Funding Model promote just and equitable principles of trade, and, in 
general, protect investors and the public interest, and are provided in 
a transparent manner and with specificity in proposed Rule 6897. FINRA 
also believes that the proposed fees are reasonable in that they would 
provide ease of calculation, ease of billing and other administrative 
functions, and predictability of a fee based on fixed rate per executed 
equivalent share and are consistent with the SEC-approved Funding 
Model. Such factors are crucial to estimating a reliable revenue stream 
for CAT LLC and for permitting Industry Members to reasonably predict 
their payment obligations for budgeting purposes.

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

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. Section 15A(b)(9) of the Act 
\276\ requires that FINRA's rules not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purpose of 
the Exchange Act. FINRA notes that Historical CAT Assessment 1 
implements provisions of the CAT NMS Plan that were approved by the 
Commission and is designed to assist FINRA in meeting its regulatory 
obligations pursuant to the Plan.
---------------------------------------------------------------------------

    \276\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------

    In addition, all Participants (including exchanges and FINRA) are 
proposing to introduce Historical CAT Assessment 1 on behalf of CAT LLC 
to implement the requirements of the CAT NMS Plan. Therefore, this is 
not a competitive fee filing, and, therefore, it does not raise 
competition issues between and among the Participants.
    Furthermore, in approving the CAT Funding Model, the SEC analyzed 
the potential competitive impact of the CAT Funding Model, including 
competitive issues related to market services, trading services and 
regulatory services, efficiency concerns, and capital formation.\277\ 
The SEC also analyzed the potential effect of CAT fees calculated 
pursuant to the CAT Funding Model on affected categories of market 
participants, including Participants (including exchanges and FINRA), 
Industry Members (including subcategories of Industry Members, such as 
alternative trading systems, CAT Executing Brokers and market makers), 
and investors generally, and considered market effects related to 
equities and options, among other things. Based on this analysis, the 
SEC approved the CAT Funding Model as compliant with the Exchange Act. 
Historical CAT Assessment 1 is calculated and implemented in accordance 
with the CAT Funding Model as approved by the SEC.
---------------------------------------------------------------------------

    \277\ See CAT Funding Model Approval Order, 88 FR 62628, 62676-
86.
---------------------------------------------------------------------------

    As discussed above, each of the inputs into the calculation of 
Historical CAT Assessment 1 is reasonable and the resulting fee rate 
for Historical CAT Assessment 1 calculated in accordance with the CAT 
Funding Model is reasonable. Therefore, Historical CAT Assessment 1 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purpose of the Exchange Act.

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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Exchange Act \278\ and Rule 19b-4(f)(2) 
thereunder,\279\ because it establishes or changes a due, or fee.
---------------------------------------------------------------------------

    \278\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \279\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend the rule 
change if it appears to the Commission that the action is necessary or 
appropriate in the public interest, for the protection of investors, or 
would otherwise further the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#651710090048060a0808000b1116251600064b020a13"><span class="__cf_email__" data-cfemail="394b4c555c145a5654545c574d4a794a5c5a175e564f">[email protected]</span></a>. Please include 
file number SR-FINRA-2024-013 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-FINRA-2024-013. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be

[[Page 76673]]

available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549, on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of the 
filing also will be available for inspection and copying at the 
principal office of FINRA. Do not include personal identifiable 
information in submissions; you should submit only information that you 
wish to make available publicly. We may redact in part or withhold 
entirely from publication submitted material that is obscene or subject 
to copyright protection.
    All submissions should refer to file number SR-FINRA-2024-013 and 
should be submitted on or before October 9, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\280\
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    \280\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-21169 Filed 9-17-24; 8:45 am]
BILLING CODE 8011-01-P


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