Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 1399 

1On February 27, 2015, BATS–Y Exchange, Inc. 

(n/k/a Cboe BYX Exchange, Inc.), BATS Exchange, 

Inc. (n/k/a Cboe BZX Exchange, Inc.), BOX Options 

Exchange LLC, C2 Options Exchange, Incorporated 

(n/k/a Cboe C2 Exchange, Inc.), Chicago Board 

Options Exchange, Incorporated (n/k/a Cboe 

Exchange, Inc.), Chicago Stock Exchange, Inc., 

EDGA Exchange, Inc. (n/k/a Cboe EDGA Exchange, 

Inc.), EDGX Exchange, Inc. (n/k/a Cboe EDGX 

Exchange, Inc.), Financial Industry Regulatory 

Authority, Inc., International Securities Exchange, 

LLC (n/k/a Nasdaq ISE, LLC), ISE Gemini, LLC (n/ 

k/a Nasdaq GEMX, LLC), Miami International 

Securities Exchange LLC, NASDAQ OMX BX, Inc. 

(n/k/a Nasdaq BX, Inc.), NASDAQ OMX PHLX LLC 

(n/k/a Nasdaq PHLX LLC), The NASDAQ Stock 

Market LLC, National Stock Exchange, Inc. (n/k/a 

NYSE National, Inc.), New York Stock Exchange 

LLC, NYSE MKT LLC (n/k/a NYSE American LLC), 

and NYSE Arca, Inc. filed with the Commission, 

pursuant to Section 11A of the Exchange Act and 

Rule 608 of Regulation NMS thereunder, the CAT 

NMS Plan. 15 U.S.C. 78k–1; 17 CFR 242.608. The 

Plan was published for comment in the Federal 

Register on May 17, 2016, and approved by the 

Commission, as modified, on November 15, 2016. 

See Securities Exchange Act Release Nos. 77724 

(April 27, 2016), 81 FR 30614 (May 17, 2016); 79318 

(November 15, 2016), 81 FR 84696 (November 23, 

2016). On January 30, 2017, the Commission 

noticed for immediate effectiveness an amendment 

to the Plan to add MIAX PEARL, LLC as a 

Participant. See Securities Exchange Act Release 

No. 79898, 82 FR 9250 (February 3, 2017). 

2 15 U.S.C 78k–1(a)(3). 

3 17 CFR 242.608. 

4See Letter from Michael Simon, CAT NMS Plan 

Operating Committee Chair, to Brent J. Fields, 

Secretary, Commission, dated December 11, 2017 

(‘‘Transmittal Letter’’). The Participants previously 

submitted an amendment to the CAT NMS Plan to 

establish Participant fees (‘‘Amendment No. 2’’). 

See Letter from Michael Simon, Chair, CAT NMS 

Plan Operating Committee, to Brent J. Fields, 

Secretary, Commission, dated May 22, 2017. See 

also Securities Exchange Act Release No. 80930 

(June 14, 2017), 82 FR 28180 (June 20, 2017), 

available at https://www.sec.gov/rules/sro/nms/ 

2017/34-80930.pdf. The Commission issued an 

Order of Summary Abrogation of Amendment No. 

2 on July 21, 2017, concluding that the amendment 

raised concerns and the justifications provided by 

the Participants were not sufficient for the 

Commission to determine whether the amendment 

was consistent with the Act. See Securities and 

Exchange Commission Release No. 81189 (July 21, 

2017), 82 FR 35005 (July 27, 2017). On October 30, 

2017, the Participants filed Amendment No. 3 to the 

CAT NMS Plan, which has been withdrawn and 

replaced and superseded in its entirety by 

Amendment No. 4. 

5 17 CFR 242.608. 

6See 17 CFR 242.608(a)(4) and (a)(5). 

7See Transmittal Letter, supra note 4. 

Dated: January 2018. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–00387 Filed 1–10–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82451; File No. 4–698] 

Joint Industry Plan; Notice of Filing 

and Immediate Effectiveness of 

Amendment No. 4 to the National 

Market System Plan Governing the 

Consolidated Audit Trail by Cboe BYX 

Exchange, Inc., Cboe BZX Exchange, 

Inc., Cboe EDGA Exchange, Inc., Cboe 

EDGX Exchange, Inc., BOX Options 

Exchange LLC, Cboe C2 Exchange, 

Inc., Cboe Exchange, Inc., Chicago 

Stock Exchange, Inc., Financial 

Industry Regulatory Authority, Inc., 

Investors’ Exchange LLC, Miami 

International Securities Exchange, 

LLC, MIAX PEARL, LLC, Nasdaq BX, 

Inc., Nasdaq GEMX, LLC, Nasdaq ISE, 

LLC, Nasdaq MRX, LLC, Nasdaq PHLX 

LLC, The Nasdaq Stock Market LLC, 

New York Stock Exchange LLC, NYSE 

Arca, Inc., NYSE American, LLC and 

NYSE National, Inc. 

January 5, 2018. 

I. Introduction 

On December 11, 2017, the Operating 

Committee for CAT NMS, LLC (the 

‘‘Company’’), on behalf of the following 

parties to the National Market System 

Plan Governing the Consolidated Audit 

Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’): 1

Cboe BYX Exchange, Inc., (previously 

known as Bats BYX Exchange, Inc.), 

Cboe BZX Exchange, Inc. (previously 

known as Bats BZX Exchange), Inc., 

Cboe EDGA Exchange, Inc. (previously 

known as Bats EDGA Exchange, Inc.), 

Cboe EDGX Exchange, Inc. (previously 

known as Bats EDGX Exchange, Inc.), 

BOX Options Exchange LLC, Cboe C2 

Exchange, Inc., Cboe Exchange, Inc., 

Chicago Stock Exchange, Inc., Financial 

Industry Regulatory Authority, Inc., 

Nasdaq ISE, LLC (previously known as 

International Securities Exchange, Inc.), 

Investors’ Exchange, LLC, Nasdaq 

GEMX (previously known as ISE 

Gemini, LLC), Nasdaq MRX (previously 

known as ISE Mercury, LLC), Miami 

International Securities Exchange, LLC, 

MIAX PEARL, LLC, Nasdaq BX, Inc. 

(previously known as NASDAQ BX, 

Inc.), Nasdaq PHLX LLC (previously 

known as NASDAQ PHLX LLC), The 

NASDAQ Stock Market LLC, National 

Stock Exchange, Inc., New York Stock 

Exchange LLC, NYSE Arca, Inc., and 

NYSE American (previously known as 

NYSE MKT, LLC) (collectively, the 

‘‘Participants,’’ ‘‘self-regulatory 

organizations’’ or ‘‘SROs’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’ or ‘‘SEC’’) pursuant to 

Section 11A(a)(3) of the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’) 2 and Rule 608 thereunder,3 a 

proposal to amend the Plan 

(‘‘Amendment No. 4’’).4 The proposed 

amendment would add a fee schedule to 

a new Exhibit B of the Plan which sets 

forth the CAT fees to be paid by the 

Participants. A copy of proposed Exhibit 

B to the CAT NMS Plan is attached as 

Appendix A hereto. The Participants 

have also included, and as attached 

hereto, an Appendix B containing two 

charts, one listing the current Equity 

Execution Venues, each with its rank 

and tier, and one listing the current 

Options Execution Venues, each with its 

rank and tier. The Commission is 

publishing this notice to solicit 

comments from interested persons on 

Amendment No. 4.5

II. Description of the Plan 

Set forth in this Section II is the 

statement of the purpose and summary 

of Amendment No. 4, along with the 

information required by Rule 608(a)(4) 

and (5) under the Exchange Act,6

prepared and submitted by the 

Participants to the Commission.7

A. Description of the Amendments to 

the CAT NMS Plan 

(1) Executive Summary 

The following provides an executive 

summary of the CAT funding model 

approved by the Operating Committee, 

as well as Participants’ obligations 

related to the payment of CAT Fees 

calculated pursuant to the CAT funding 

model. A detailed description of the 

CAT funding model and the CAT Fees 

follows this executive summary. 

• CAT Costs. The CAT funding model 

is designed to establish CAT-specific 

fees to collectively recover the costs of 

building and operating the CAT from all 

CAT Reporters, including Industry 

Members and Participants. The overall 

CAT costs used in calculating the CAT 

Fees in this fee filing are comprised of 

Plan Processor CAT costs and non-Plan 

Processor CAT costs incurred, and 

estimated to be incurred, from 

November 21, 2016 through November 

21, 2017. Although the CAT costs from 

November 21, 2016 through November 

21, 2017 were used in calculating the 

CAT Fees, the CAT Fees set forth in this 

fee filing would be in effect until the 

automatic sunset date, as discussed 

below. (See Section A(2)(E) below) 

• Bifurcated Funding Model. The 

CAT NMS Plan requires a bifurcated 

funding model, where costs associated 

with building and operating the CAT 

would be borne by (1) Participants and 

Industry Members that are Execution 

Venues for Eligible Securities through 

fixed tier fees based on market share, 

and (2) Industry Members (other than 

alternative trading systems (‘‘ATSs’’) 

that execute transactions in Eligible 

Securities (‘‘Execution Venue ATSs’’)) 

through fixed tier fees based on message 

traffic for Eligible Securities. (See 

Section A(2) below) 


srobinson on DSK9F5VC42PROD with NOTICES
1400 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 

8Approval Order at 84796. 

9 Id. at 84794. 

10 Id. at 84795. 

11 Id. at 84794. 

12Section B.7, Appendix C of the CAT NMS Plan, 

Approval Order at 85006. 

• Industry Member Fees. Each 

Industry Member (other than Execution 

Venue ATSs) will be placed into one of 

seven tiers of fixed fees, based on 

‘‘message traffic’’ in Eligible Securities 

for a defined period (as discussed 

below). Prior to the start of CAT 

reporting, ‘‘message traffic’’ will be 

comprised of historical equity and 

equity options orders, cancels, quotes 

and executions provided by each 

exchange and the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) 

over the previous three months. After an 

Industry Member begins reporting to the 

CAT, ‘‘message traffic’’ will be 

calculated based on the Industry 

Member’s Reportable Events reported to 

the CAT. Industry Members with lower 

levels of message traffic will pay a lower 

fee and Industry Members with higher 

levels of message traffic will pay a 

higher fee. To avoid disincentives to 

quoting behavior, Options Market Maker 

and equity market maker quotes will be 

discounted when calculating message 

traffic. (See Section A(2)(B) below) 

• Execution Venue Fees. Each Equity 

Execution Venue will be placed in one 

of four tiers of fixed fees based on 

market share, and each Options 

Execution Venue will be placed in one 

of two tiers of fixed fees based on 

market share. Equity Execution Venue 

market share will be determined by 

calculating each Equity Execution 

Venue’s proportion of the total volume 

of NMS Stock and OTC Equity shares 

reported by all Equity Execution Venues 

during the relevant time period. For 

purposes of calculating market share, 

the OTC Equity Securities market share 

of Execution Venue ATSs trading OTC 

Equity Securities as well as the market 

share of the FINRA OTC reporting 

facility (‘‘ORF’’) will be discounted. 

Similarly, market share for Options 

Execution Venues will be determined by 

calculating each Options Execution 

Venue’s proportion of the total volume 

of Listed Options contracts reported by 

all Options Execution Venues during 

the relevant time period. Equity 

Execution Venues with a larger market 

share will pay a larger CAT Fee than 

Equity Execution Venues with a smaller 

market share. Similarly, Options 

Execution Venues with a larger market 

share will pay a larger CAT Fee than 

Options Execution Venues with a 

smaller market share. (See Section 

A(2)(C) below) 

• Cost Allocation. For the reasons 

discussed below, in designing the 

model, the Operating Committee 

determined that 75 percent of total costs 

recovered would be allocated to 

Industry Members (other than Execution 

Venue ATSs) and 25 percent would be 

allocated to Execution Venues. In 

addition, the Operating Committee 

determined to allocate 67 percent of 

Execution Venue costs recovered to 

Equity Execution Venues and 33 percent 

to Options Execution Venues. (See 

Section A(2)(D) below) 

• Comparability of Fees. The CAT 

funding model charges CAT Reporters 

with the most CAT-related activity 

(measured by market share and/or 

message traffic, as applicable) 

comparable CAT Fees. (See Section 

A(2)(F) below) 

• Fee Schedule. The quarterly CAT 

Fees for each tier for Participants are set 

forth in the two fee schedules in 

proposed Exhibit B to the CAT NMS 

Plan, one for Execution Venues for NMS 

Stocks and OTC Equity Securities, and 

one for Execution Venues for Listed 

Options. (See Section A(3) below) 

• Sunset Provision. The CAT Fees set 

forth in proposed Exhibit B would 

sunset automatically two years from 

their operative date. (See Section A(2)(J) 

below) 

(2) Description of the CAT Funding 

Model 

Article XI of the CAT NMS Plan 

requires the Operating Committee to 

approve the operating budget, including 

projected costs of developing and 

operating the CAT for the upcoming 

year. In addition to a budget, Article XI 

of the CAT NMS Plan provides that the 

Operating Committee has discretion to 

establish funding for the Company, 

consistent with a bifurcated funding 

model, where costs associated with 

building and operating the Central 

Repository would be borne by (1) 

Participants and Industry Members that 

are Execution Venues through fixed tier 

fees based on market share, and (2) 

Industry Members (other than Execution 

Venue ATSs) through fixed tier fees 

based on message traffic. In its order 

approving the CAT NMS Plan, the 

Commission determined that the 

proposed funding model was 

‘‘reasonable’’ 8 and ‘‘reflects a 

reasonable exercise of the Participants’ 

funding authority to recover the 

Participants’ costs related to the CAT.’’ 9

More specifically, the Commission 

stated in approving the CAT NMS Plan 

that ‘‘[t]he Commission believes that the 

proposed funding model is reasonably 

designed to allocate the costs of the CAT 

between the Participants and Industry 

Members.’’ 10 The Commission further 

noted the following: 

The Commission believes that the 

proposed funding model reflects a 

reasonable exercise of the Participants’ 

funding authority to recover the 

Participants’ costs related to the CAT. 

The CAT is a regulatory facility jointly 

owned by the Participants and . . . the 

Exchange Act specifically permits the 

Participants to charge members fees to 

fund their self-regulatory obligations. 

The Commission further believes that 

the proposed funding model is designed 

to impose fees reasonably related to the 

Participants’ self-regulatory obligations 

because the fees would be directly 

associated with the costs of establishing 

and maintaining the CAT, and not 

unrelated SRO services.11

Accordingly, the funding model 

approved by the Operating Committee 

imposes fees on both Participants and 

Industry Members. 

As discussed in Appendix C of the 

CAT NMS Plan, in developing and 

approving the approved funding model, 

the Operating Committee considered the 

advantages and disadvantages of a 

variety of alternative funding and cost 

allocation models before selecting the 

proposed model.12 After analyzing the 

various alternatives, the Operating 

Committee determined that the 

proposed tiered, fixed fee funding 

model provides a variety of advantages 

in comparison to the alternatives. 

In particular, the fixed fee model, as 

opposed to a variable fee model, 

provides transparency, ease of 

calculation, ease of billing and other 

administrative functions, and 

predictability of a fixed fee. Such factors 

are crucial to estimating a reliable 

revenue stream for the Company and for 

permitting CAT Reporters to reasonably 

predict their payment obligations for 

budgeting purposes. Additionally, a 

strictly variable or metered funding 

model based on message volume would 

be far more likely to affect market 

behavior and place an inappropriate 

burden on competition. 

In addition, reviews from varying 

time periods of current broker-dealer 

order and trading data submitted under 

existing reporting requirements showed 

a wide range in activity among brokerdealers, with a number of broker-dealers 

submitting fewer than 1,000 orders per 

month and other broker-dealers 

submitting millions and even billions of 

orders in the same period. Accordingly, 

the CAT NMS Plan includes a tiered 

approach to fees. The tiered approach 

helps ensure that fees are equitably 

allocated among similarly situated CAT 


srobinson on DSK9F5VC42PROD with NOTICES
Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 1401 

13Section B.7, Appendix C of the CAT NMS Plan, 

Approval Order at 85006. 

14Moreover, as the SEC noted in approving the 

CAT NMS Plan, ‘‘[t]he Participants also have 

offered a reasonable basis for establishing a funding 

model based on broad tiers, in that it may be easier 

to implement.’’ Approval Order at 84796. 

15Approval Order at 85005. 

16 Id. 

17 Id. 

18Section 11.3(a) and (b) of the CAT NMS Plan. 

19Section B.7, Appendix C of the CAT NMS Plan, 

Approval Order at 85005. 

20Section 11.3(b) of the CAT NMS Plan. 

21The Operating Committee notes that this 

analysis did not place MIAX PEARL in Tier 1 or 

Tier 2 since the exchange commenced trading on 

February 6, 2017. 

22Section 11.2(e) of the CAT NMS Plan. 

23Approval Order at 84796. 

24 Id. at 84792. 

Reporters and furthers the goal of 

lessening the impact on smaller firms.13

In addition, in choosing a tiered fee 

structure, the Operating Committee 

concluded that the variety of benefits 

offered by a tiered fee structure, 

discussed above, outweighed the fact 

that CAT Reporters in any particular tier 

would pay different rates per message 

traffic order event or per market share 

(e.g., an Industry Member with the 

largest amount of message traffic in one 

tier would pay a smaller amount per 

order event than an Industry Member in 

the same tier with the least amount of 

message traffic). Such variation is the 

natural result of a tiered fee structure.14

The Operating Committee considered 

several approaches to developing a 

tiered model, including defining fee 

tiers based on such factors as size of 

firm, message traffic or trading dollar 

volume. After analyzing the alternatives, 

it was concluded that the tiering should 

be based on message traffic which will 

reflect the relative impact of CAT 

Reporters on the CAT System. 

Accordingly, the CAT NMS Plan 

contemplates that costs will be allocated 

across the CAT Reporters on a tiered 

basis in order to allocate higher costs to 

those CAT Reporters that contribute 

more to the costs of creating, 

implementing and maintaining the CAT 

and lower costs to those that contribute 

less.15 The fees to be assessed at each 

tier are calculated so as to recoup a 

proportion of costs appropriate to the 

message traffic or market share (as 

applicable) from CAT Reporters in each 

tier. Therefore, Industry Members 

generating the most message traffic will 

be in the higher tiers, and will be 

charged a higher fee. Industry Members 

with lower levels of message traffic will 

be in lower tiers and will be assessed a 

smaller fee for the CAT.16

Correspondingly, Execution Venues 

with the highest market shares will be 

in the top tier, and will be charged 

higher fees. Execution Venues with the 

lowest market shares will be in the 

lowest tier and will be assessed smaller 

fees for the CAT.17

The CAT NMS Plan states that 

Industry Members (other than Execution 

Venue ATSs) will be charged based on 

message traffic, and that Execution 

Venues will be charged based on market 

share.18 While there are multiple factors 

that contribute to the cost of building, 

maintaining and using the CAT, 

processing and storage of incoming 

message traffic is one of the most 

significant cost drivers for the CAT.19

Thus, the CAT NMS Plan provides that 

the fees payable by Industry Members 

(other than Execution Venue ATSs) will 

be based on the message traffic 

generated by such Industry Member.20

In contrast to Industry Members, 

which determine the degree to which 

they produce message traffic that 

constitute CAT Reportable Events, the 

CAT Reportable Events of the Execution 

Venues are largely derivative of 

quotations and orders received from 

Industry Members that they are required 

to display. The business model for 

Execution Venues (other than FINRA), 

however, is focused on executions in 

their markets. As a result, the Operating 

Committee believes that it is more 

equitable to charge Execution Venues 

based on their market share rather than 

their message traffic. 

Focusing on message traffic would 

make it more difficult to draw 

distinctions between large and small 

Execution Venues and, in particular, 

between large and small options 

exchanges. For instance, the Operating 

Committee analyzed the message traffic 

of Execution Venues and Industry 

Members for the period of April 2017 to 

June 2017 and placed all CAT Reporters 

into a nine-tier framework (i.e., a single 

tier may include both Execution Venues 

and Industry Members). The Operating 

Committee’s analysis found that the 

majority of exchanges (15 total) were 

grouped in Tiers 1 and 2. Moreover, 

virtually all of the options exchanges 

were in Tiers 1 and 2.21 Given the 

resulting concentration of options 

exchanges in Tiers 1 and 2 under this 

approach, the analysis shows that a 

funding model for Execution Venues 

based on message traffic would make it 

more difficult to distinguish between 

large and small options exchanges, as 

compared to the proposed fee approach 

that bases fees for Execution Venues on 

market share. 

The CAT NMS Plan’s funding model 

also is structured to avoid a ‘‘reduction 

in market quality.’’ 22 The tiered, fixed 

fee funding model is designed to limit 

the disincentives to providing liquidity 

to the market. For example, the 

Operating Committee expects that a firm 

that has a large volume of quotes would 

likely be categorized in one of the upper 

tiers, and would not be assessed a fee 

for this traffic directly as they would 

under a more directly metered model. In 

contrast, strictly variable or metered 

funding models based on message 

volume are far more likely to affect 

market behavior. In approving the CAT 

NMS Plan, the SEC stated that ‘‘[t]he 

Participants also offered a reasonable 

basis for establishing a funding model 

based on broad tiers, in that it may be 

. . . less likely to have an incremental 

deterrent effect on liquidity 

provision.’’ 23

The funding model also is structured 

to avoid a reduction market quality 

because it discounts Options Market 

Maker and equity market maker quotes 

when calculating message traffic for 

Options Market Makers and equity 

market makers, respectively. As 

discussed in more detail below, the 

Operating Committee determined to 

discount the Options Market Maker 

quotes by the trade to quote ratio for 

options when calculating message traffic 

for Options Market Makers. Similarly, to 

avoid disincentives to quoting behavior 

on the equities side as well, the 

Operating Committee determined to 

discount equity market maker quotes by 

the trade to quote ratio for equities 

when calculating message traffic for 

equity market makers. The proposed 

discounts recognize the value of the 

market makers’ quoting activity to the 

market as a whole. 

The CAT NMS Plan is further 

structured to avoid potential conflicts 

raised by the Operating Committee 

determining fees applicable to its own 

members—the Participants. First, the 

Company will operate on a ‘‘breakeven’’ basis, with fees imposed to cover 

costs and an appropriate reserve. Any 

surpluses will be treated as an 

operational reserve to offset future fees 

and will not be distributed to the 

Participants as profits.24 To ensure that 

the Participants’ operation of the CAT 

will not contribute to the funding of 

their other operations, Section 11.1(c) of 

the CAT NMS Plan specifically states 

that ‘‘[a]ny surplus of the Company’s 

revenues over its expenses shall be 

treated as an operational reserve to 

offset future fees.’’ In addition, as set 

forth in Article VIII of the CAT NMS 

Plan, the Company ‘‘intends to operate 

in a manner such that it qualifies as a 

‘business league’ within the meaning of 

Section 501(c)(6) of the [Internal 


srobinson on DSK9F5VC42PROD with NOTICES
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25 26 U.S.C. 501(c)(6). 

26Approval Order at 84793. 

Revenue] Code.’’ To qualify as a 

business league, an organization must 

‘‘not [be] organized for profit and no 

part of the net earnings of [the 

organization can] inure[] to the benefit 

of any private shareholder or 

individual.’’ 25 As the SEC stated when 

approving the CAT NMS Plan, ‘‘the 

Commission believes that the 

Company’s application for Section 

501(c)(6) business league status 

addresses issues raised by commenters 

about the Plan’s proposed allocation of 

profit and loss by mitigating concerns 

that the Company’s earnings could be 

used to benefit individual 

Participants.’’ 26 The Internal Revenue 

Service recently has determined that the 

Company is exempt from federal income 

tax under Section 501(c)(6) of the 

Internal Revenue Code. 

The funding model also is structured 

to take into account distinctions in the 

securities trading operations of 

Participants and Industry Members. For 

example, the Operating Committee 

designed the model to address the 

different trading characteristics in the 

OTC Equity Securities market. 

Specifically, the Operating Committee 

proposes to discount the OTC Equity 

Securities market share of Execution 

Venue ATSs trading OTC Equity 

Securities as well as the market share of 

the FINRA ORF by the average shares 

per trade ratio between NMS Stocks and 

OTC Equity Securities to adjust for the 

greater number of shares being traded in 

the OTC Equity Securities market, 

which is generally a function of a lower 

per share price for OTC Equity 

Securities when compared to NMS 

Stocks. In addition, the Operating 

Committee also proposes to discount 

Options Market Maker and equity 

market maker message traffic in 

recognition of their role in the securities 

markets. Furthermore, the funding 

model creates separate tiers for Equity 

and Options Execution Venues due to 

the different trading characteristics of 

those markets. 

Finally, by adopting a CAT-specific 

fee, the Operating Committee will be 

fully transparent regarding the costs of 

the CAT. Charging a general regulatory 

fee, which would be used to cover CAT 

costs as well as other regulatory costs, 

would be less transparent than the 

selected approach of charging a fee 

designated to cover CAT costs only. 

A full description of the funding 

model is set forth below. This 

description includes the framework for 

the funding model as set forth in the 

CAT NMS Plan, as well as the details as 

to how the funding model will be 

applied in practice, including the 

number of fee tiers and the applicable 

fees for each tier. The complete funding 

model is described below, including 

those fees that are to be paid by Industry 

Members. Proposed Exhibit B, however, 

does not apply to Industry Members; 

proposed Exhibit B only applies to 

Participants. The CAT Fees for Industry 

Members will be imposed separately 

pursuant to rules adopted by the 

individual self-regulatory organizations 

(‘‘SROs[sic]). 

(A) Funding Principles 

Section 11.2 of the CAT NMS Plan 

sets forth the principles that the 

Operating Committee applied in 

establishing the funding for the 

Company. The Operating Committee has 

considered these funding principles as 

well as the other funding requirements 

set forth in the CAT NMS Plan and in 

Rule 613 in developing the proposed 

funding model. The following are the 

funding principles in Section 11.2 of the 

CAT NMS Plan: 

• To create transparent, predictable 

revenue streams for the Company that 

are aligned with the anticipated costs to 

build, operate and administer the CAT 

and other costs of the Company; 

• To establish an allocation of the 

Company’s related costs among 

Participants and Industry Members that 

is consistent with the Exchange Act, 

taking into account the timeline for 

implementation of the CAT and 

distinctions in the securities trading 

operations of Participants and Industry 

Members and their relative impact upon 

the Company’s resources and 

operations; 

• To establish a tiered fee structure in 

which the fees charged to: (i) CAT 

Reporters that are Execution Venues, 

including ATSs, are based upon the 

level of market share; (ii) Industry 

Members’ non-ATS activities are based 

upon message traffic; (iii) the CAT 

Reporters with the most CAT-related 

activity (measured by market share and/ 

or message traffic, as applicable) are 

generally comparable (where, for these 

comparability purposes, the tiered fee 

structure takes into consideration 

affiliations between or among CAT 

Reporters, whether Execution Venue 

and/or Industry Members); 

• To provide for ease of billing and 

other administrative functions; 

• To avoid any disincentives such as 

placing an inappropriate burden on 

competition and a reduction in market 

quality; and 

• To build financial stability to 

support the Company as a going 

concern. 

(B) Industry Member Tiering 

Under Section 11.3(b) of the CAT 

NMS Plan, the Operating Committee is 

required to establish fixed fees to be 

payable by Industry Members, based on 

message traffic generated by such 

Industry Member, with the Operating 

Committee establishing at least five and 

no more than nine tiers. 

The CAT NMS Plan clarifies that the 

fixed fees payable by Industry Members 

pursuant to Section 11.3(b) shall, in 

addition to any other applicable 

message traffic, include message traffic 

generated by: (i) An ATS that does not 

execute orders that is sponsored by such 

Industry Member; and (ii) routing orders 

to and from any ATS sponsored by such 

Industry Member. In addition, the 

Industry Member fees will apply to 

Industry Members that act as routing 

broker-dealers for exchanges. The 

Industry Member fees will not be 

applicable, however, to an ATS that 

qualifies as an Execution Venue, as 

discussed in more detail in the section 

on Execution Venue tiering. 

In accordance with Section 11.3(b), 

the Operating Committee approved a 

tiered fee structure for Industry 

Members (other than Execution Venue 

ATSs) as described in this section. In 

determining the tiers, the Operating 

Committee considered the funding 

principles set forth in Section 11.2 of 

the CAT NMS Plan, seeking to create 

funding tiers that take into account the 

relative impact on CAT System 

resources of different Industry Members, 

and that establish comparable fees 

among the CAT Reporters with the most 

Reportable Events. The Operating 

Committee has determined that 

establishing seven tiers results in an 

allocation of fees that distinguishes 

between Industry Members with 

differing levels of message traffic. Thus, 

each such Industry Member will be 

placed into one of seven tiers of fixed 

fees, based on ‘‘message traffic’’ for a 

defined period (as discussed below). 

A seven tier structure was selected to 

provide a wide range of levels for tiering 

Industry Members such that Industry 

Members submitting significantly less 

message traffic to the CAT would be 

adequately differentiated from Industry 

Members submitting substantially more 

message traffic. The Operating 

Committee considered historical 

message traffic from multiple time 

periods, generated by Industry Members 

across all exchanges and as submitted to 

FINRA’s Order Audit Trail System 

(‘‘OATS’’), and considered the 

distribution of firms with similar levels 

of message traffic, grouping together 

firms with similar levels of message 


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traffic. Based on this, the Operating 

Committee determined that seven tiers 

would group firms with similar levels of 

message traffic, charging those firms 

with higher impact on the CAT more, 

while lowering the burden on Industry 

Members that have less CAT-related 

activity. Furthermore, the selection of 

seven tiers establishes comparable fees 

among the largest CAT Reporters. 

Each Industry Member (other than 

Execution Venue ATSs) will be ranked 

by message traffic and tiered by 

predefined Industry Member 

percentages (the ‘‘Industry Member 

Percentages’’). The Operating 

Committee determined to use 

predefined percentages rather than fixed 

volume thresholds to ensure that the 

total CAT Fees collected recover the 

expected CAT costs regardless of 

changes in the total level of message 

traffic. To determine the fixed 

percentage of Industry Members in each 

tier, the Operating Committee analyzed 

historical message traffic generated by 

Industry Members across all exchanges 

and as submitted to OATS, and 

considered the distribution of firms 

with similar levels of message traffic, 

grouping together firms with similar 

levels of message traffic. Based on this, 

the Operating Committee identified 

seven tiers that would group firms with 

similar levels of message traffic. 

The percentage of costs recovered by 

each Industry Member tier will be 

determined by predefined percentage 

allocations (the ‘‘Industry Member 

Recovery Allocation’’). In determining 

the fixed percentage allocation of costs 

recovered for each tier, the Operating 

Committee considered the impact of 

CAT Reporter message traffic on the 

CAT System as well as the distribution 

of total message volume across Industry 

Members while seeking to maintain 

comparable fees among the largest CAT 

Reporters. Accordingly, following the 

determination of the percentage of 

Industry Members in each tier, the 

Operating Committee identified the 

percentage of total market volume for 

each tier based on the historical message 

traffic upon which Industry Members 

had been initially ranked. Taking this 

into account along with the resulting 

percentage of total recovery, the 

percentage allocation of costs recovered 

for each tier were assigned, allocating 

higher percentages of recovery to tiers 

with higher levels of message traffic 

while avoiding any inappropriate 

burden on competition. Furthermore, by 

using percentages of Industry Members 

and costs recovered per tier, the 

Operating Committee sought to include 

elasticity within the funding model, 

allowing the funding model to respond 

to changes in either the total number of 

Industry Members or the total level of 

message traffic. 

The following chart illustrates the 

breakdown of seven Industry Member 

tiers across the monthly average of total 

equity and equity options orders, 

cancels, quotes and executions in the 

second quarter of 2017 as well as 

message traffic thresholds between the 

largest of Industry Member message 

traffic gaps. The Operating Committee 

referenced similar distribution 

illustrations to determine the 

appropriate division of Industry 

Member percentages in each tier by 

considering the grouping of firms with 

similar levels of message traffic and 

seeking to identify relative breakpoints 

in the message traffic between such 

groupings. In reviewing the chart and its 

corresponding table, note that while 

these distribution illustrations were 

referenced to help differentiate between 

Industry Member tiers, the proposed 

funding model is driven by fixed 

percentages of Industry Members across 

tiers to account for fluctuating levels of 

message traffic over time. This approach 

also provides financial stability for the 

CAT by ensuring that the funding model 

will recover the required amounts 

regardless of changes in the number of 

Industry Members or the amount of 

message traffic. Actual messages in any 

tier will vary based on the actual traffic 

in a given measurement period, as well 

as the number of firms included in the 

measurement period. The Industry 

Member Percentages and Industry 

Member Recovery Allocation for each 

tier will remain fixed with each 

Industry Member’s tier to be reassigned 

periodically, as described below in 

Section A(2)(I). 


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Industry Member tier 

Approximate Message Traffic per 

Industry Member (Q2 2017) 

(orders, quotes, cancels 

and executions) 

Tier 1 ................................................................................................................................................................ >10,000,000,000 

Tier 2 ................................................................................................................................................................ 1,000,000,000–10,000,000,000 

Tier 3 ................................................................................................................................................................ 100,000,000–1,000,000,000 

Tier 4 ................................................................................................................................................................ 1,000,000–100,000,000 

Tier 5 ................................................................................................................................................................ 100,000–1,000,000 

Tier 6 ................................................................................................................................................................ 10,000–100,000 

Tier 7 ................................................................................................................................................................ <10,000 

Based on the above analysis, the 

Operating Committee approved the 

following Industry Member Percentages 

and Industry Member Recovery 

Allocations: 

Industry Member tier 

Percentage 

of 

Industry 

Members 

Percentage of 

Industry 

Member 

recovery 

Percentage 

of total 

recovery 

Tier 1 ............................................................................................................................................ 0.900 12.00 9.00 

Tier 2 ............................................................................................................................................ 2.150 20.50 15.38 

Tier 3 ............................................................................................................................................ 2.800 18.50 13.88 

Tier 4 ............................................................................................................................................ 7.750 32.00 24.00 

Tier 5 ............................................................................................................................................ 8.300 10.00 7.50 

Tier 6 ............................................................................................................................................ 18.800 6.00 4.50 

Tier 7 ............................................................................................................................................ 59.300 1.00 0.75 

Total ...................................................................................................................................... 100 100 75 

For the purposes of creating these 

tiers based on message traffic, the 

Operating Committee determined to 

define the term ‘‘message traffic’’ 

separately for the period before the 

commencement of CAT reporting and 

for the period after the start of CAT 

reporting. The different definition for 

message traffic is necessary as there will 

be no Reportable Events as defined in 

the Plan, prior to the commencement of 

CAT reporting. Accordingly, prior to the 

start of CAT reporting, ‘‘message traffic’’ 

will be comprised of historical equity 

and equity options orders, cancels, 

quotes and executions provided by each 

exchange and FINRA over the previous 

three months. Prior to the start of CAT 

reporting, orders would be comprised of 

the total number of equity and equity 

options orders received and originated 


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27Consequently, firms that do not have ‘‘message 

traffic’’ reported to an exchange or OATS before 

they are reporting to the CAT would not be subject 

to a fee until they begin to report information to 

CAT. 

28 If an Industry Member (other than an Execution 

Venue ATS) has no orders, cancels, quotes and 

executions prior to the commencement of CAT 

Reporting, or no Reportable Events after CAT 

reporting commences, then the Industry Member 

would not have a CAT Fee obligation. 

29The SEC approved exemptive relief permitting 

Options Market Maker quotes to be reported to the 

Central Repository by the relevant Options 

Exchange in lieu of requiring that such reporting be 

done by both the Options Exchange and the Options 

Market Maker, as required by Rule 613 of 

Regulation NMS. See Securities Exchange Act Rel. 

No. 77265 (Mar. 1, 2017 [sic], 81 FR 11856 (Mar. 

7, 2016). This exemption applies to Options Market 

Maker quotes for CAT reporting purposes only. 

Therefore, notwithstanding the reporting exemption 

provided for Options Market Maker quotes, Options 

Market Maker quotes will be included in the 

calculation of total message traffic for Options 

Market Makers for purposes of tiering under the 

CAT funding model both prior to CAT reporting 

and once CAT reporting commences. 

30The trade to quote ratios were calculated based 

on the inverse of the average of the monthly equity 

SIP and OPRA quote to trade ratios from June 2016– 

June 2017 that were compiled by the Financial 

Information Forum using data from NASDAQ and 

SIAC. 

31Although FINRA does not operate an execution 

venue, because it is a Participant, it is considered 

an ‘‘Execution Venue’’ under the Plan for purposes 

of determining fees. 

by a member of an exchange or FINRA 

over the previous three-month period, 

including principal orders, cancel/ 

replace orders, market maker orders 

originated by a member of an exchange, 

and reserve (iceberg) orders as well as 

executions originated by a member of 

FINRA, and excluding order rejects, 

system-modified orders, order routes 

and implied orders.27 In addition, prior 

to the start of CAT reporting, cancels 

would be comprised of the total number 

of equity and equity option cancels 

received and originated by a member of 

an exchange or FINRA over a threemonth period, excluding order 

modifications (e.g., order updates, order 

splits, partial cancels) and multiple 

cancels of a complex order. 

Furthermore, prior to the start of CAT 

reporting, quotes would be comprised of 

information readily available to the 

exchanges and FINRA, such as the total 

number of historical equity and equity 

options quotes received and originated 

by a member of an exchange or FINRA 

over the prior three-month period. 

Additionally, prior to the start of CAT 

reporting, executions would be 

comprised of the total number of equity 

and equity option executions received 

or originated by a member of an 

exchange or FINRA over a three-month 

period. 

After an Industry Member begins 

reporting to the CAT, ‘‘message traffic’’ 

will be calculated based on the Industry 

Member’s Reportable Events reported to 

the CAT as will be defined in the 

Technical Specifications.28

Quotes of Options Market Makers and 

equity market makers will be included 

in the calculation of total message traffic 

for those market makers for purposes of 

tiering under the CAT funding model 

both prior to CAT reporting and once 

CAT reporting commences.29 To 

address potential concerns regarding 

burdens on competition or market 

quality of including quotes in the 

calculation of message traffic, however, 

the Operating Committee determined to 

discount the Options Market Maker 

quotes by the trade to quote ratio for 

options when calculating message traffic 

for Options Market Makers. Based on 

available data for June 2016 through 

June 2017, the trade to quote ratio for 

options is 0.01%. Similarly, to avoid 

disincentives to quoting behavior on the 

equities side, the Operating Committee 

determined to discount equity market 

maker quotes by the trade to quote ratio 

for equities. Based on available data for 

June 2016 through June 2017, the trade 

to quote ratio for equities is 5.43%.30

The trade to quote ratio for options and 

the trade to quote ratio for equities will 

be calculated every three months when 

tiers are recalculated (as discussed 

below). 

The Operating Committee has 

determined to calculate fee tiers every 

three months, on a calendar quarter 

basis, based on message traffic from the 

prior three months. Based on its 

analysis of historical data, the Operating 

Committee believes that calculating tiers 

based on three months of data will 

provide the best balance between 

reflecting changes in activity by 

Industry Members while still providing 

predictability in the tiering for Industry 

Members. Because fee tiers will be 

calculated based on message traffic from 

the prior three months, the Operating 

Committee will begin calculating 

message traffic based on an Industry 

Member’s Reportable Events reported to 

the CAT once the Industry Member has 

been reporting to the CAT for three 

months. Prior to that, fee tiers will be 

calculated as discussed above with 

regard to the period prior to CAT 

reporting. 

(C) Execution Venue Tiering 

Under Section 11.3(a) of the CAT 

NMS Plan, the Operating Committee is 

required to establish fixed fees payable 

by Execution Venues. Section 1.1 of the 

CAT NMS Plan defines an Execution 

Venue as ‘‘a Participant or an alternative 

trading system (‘‘ATS’’) (as defined in 

Rule 300 of Regulation ATS) that 

operates pursuant to Rule 301 of 

Regulation ATS (excluding any such 

ATS that does not execute orders).’’ 31

The Operating Committee determined 

that ATSs should be included within 

the definition of Execution Venue. The 

Operating Committee believes that it is 

appropriate to treat ATSs as Execution 

Venues under the proposed funding 

model since ATSs have business models 

that are similar to those of exchanges, 

and ATSs also compete with exchanges. 

Given the differences between 

Execution Venues that trade NMS 

Stocks and/or OTC Equity Securities 

and Execution Venues that trade Listed 

Options, Section 11.3(a) addresses 

Execution Venues that trade NMS 

Stocks and/or OTC Equity Securities 

separately from Execution Venues that 

trade Listed Options. Equity and 

Options Execution Venues are treated 

separately for two reasons. First, the 

differing quoting behavior of Equity and 

Options Execution Venues makes 

comparison of activity between such 

Execution Venues difficult. Second, 

Execution Venue tiers are calculated 

based on market share of share volume, 

and it is therefore difficult to compare 

market share between asset classes (i.e., 

equity shares versus options contracts). 

Discussed below is how the funding 

model treats the two types of Execution 

Venues. 

(I) NMS Stocks and OTC Equity 

Securities 

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

Plan states that each Execution Venue 

that (i) executes transactions or, (ii) in 

the case of a national securities 

association, has trades reported by its 

members to its trade reporting facility or 

facilities for reporting transactions 

effected otherwise than on an exchange, 

in NMS Stocks or OTC Equity Securities 

will pay a fixed fee depending on the 

market share of that Execution Venue in 

NMS Stocks and OTC Equity Securities, 

with the Operating Committee 

establishing at least two and not more 

than five tiers of fixed fees, based on an 

Execution Venue’s NMS Stocks and 

OTC Equity Securities market share. For 

these purposes, market share for 

Execution Venues that execute 

transactions will be calculated by share 

volume, and market share for a national 

securities association that has trades 

reported by its members to its trade 

reporting facility or facilities for 

reporting transactions effected 

otherwise than on an exchange in NMS 

Stocks or OTC Equity Securities will be 


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32The average shares per trade ratio for both NMS 

Stocks and OTC Equity Securities from the second 

quarter of 2017 was calculated using publicly 

available market volume data from Bats and OTC 

Markets Group, and the totals were divided to 

determine the average number of shares per trade 

between NMS Stocks and OTC Equity Securities. 

calculated based on share volume of 

trades reported, provided, however, that 

the share volume reported to such 

national securities association by an 

Execution Venue shall not be included 

in the calculation of such national 

security association’s market share. 

In accordance with Section 11.3(a)(i) 

of the CAT NMS Plan, the Operating 

Committee approved a tiered fee 

structure for Equity Execution Venues 

and Option Execution Venues. In 

determining the Equity Execution 

Venue Tiers, the Operating Committee 

considered the funding principles set 

forth in Section 11.2 of the CAT NMS 

Plan, seeking to create funding tiers that 

take into account the relative impact on 

system resources of different Equity 

Execution Venues, and that establish 

comparable fees among the CAT 

Reporters with the most Reportable 

Events. Each Equity Execution Venue 

will be placed into one of four tiers of 

fixed fees, based on the Execution 

Venue’s NMS Stocks and OTC Equity 

Securities market share. In choosing 

four tiers, the Operating Committee 

performed an analysis similar to that 

discussed above with regard to the nonExecution Venue Industry Members to 

determine the number of tiers for Equity 

Execution Venues. The Operating 

Committee determined to establish four 

tiers for Equity Execution Venues, rather 

than a larger number of tiers as 

established for non-Execution Venue 

Industry Members, because the four 

tiers were sufficient to distinguish 

between the smaller number of Equity 

Execution Venues based on market 

share. Furthermore, the selection of four 

tiers serves to help establish 

comparability among the largest CAT 

Reporters. 

Each Equity Execution Venue will be 

ranked by market share and tiered by 

predefined Execution Venue 

percentages, (the ‘‘Equity Execution 

Venue Percentages’’). In determining the 

fixed percentage of Equity Execution 

Venues in each tier, the Operating 

Committee reviewed historical market 

share of share volume for Execution 

Venues. Equity Execution Venue market 

shares of share volume were sourced 

from market statistics made publiclyavailable by Bats Global Markets, Inc. 

(‘‘Bats’’). ATS market shares of share 

volume was sourced from market 

statistics made publicly-available by 

FINRA. FINRA trade reporting facility 

(‘‘TRF’’) and ORF market share of share 

volume was sourced from market 

statistics made publicly available by 

FINRA. Based on data from FINRA and 

otcmarkets.com, ATSs accounted for 

39.12% of the share volume across the 

TRFs and ORFs during the recent tiering 

period. A 39.12/60.88 split was applied 

to the ATS and non-ATS breakdown of 

FINRA market share, with FINRA tiered 

based only on the non-ATS portion of 

its market share of share volume. 

The Operating Committee determined 

to discount the OTC Equity Securities 

market share of Execution Venue ATSs 

trading OTC Equity Securities as well as 

the market share of the FINRA ORF in 

recognition of the different trading 

characteristics of the OTC Equity 

Securities market as compared to the 

market in NMS Stocks. Many OTC 

Equity Securities are priced at less than 

one dollar—and a significant number at 

less than one penny—per share and 

low-priced shares tend to trade in larger 

quantities. Accordingly, a 

disproportionately large number of 

shares are involved in transactions 

involving OTC Equity Securities versus 

NMS Stocks. Because the proposed fee 

tiers are based on market share 

calculated by share volume, Execution 

Venue ATSs trading OTC Equity 

Securities and FINRA would likely be 

subject to higher tiers than their 

operations may warrant. To address this 

potential concern, the Operating 

Committee determined to discount the 

OTC Equity Securities market share of 

Execution Venue ATSs trading OTC 

Equity Securities and the market share 

of the FINRA ORF by multiplying such 

market share by the average shares per 

trade ratio between NMS Stocks and 

OTC Equity Securities in order to adjust 

for the greater number of shares being 

traded in the OTC Equity Securities 

market. Based on available data for the 

second quarter of 2017, the average 

shares per trade ratio between NMS 

Stocks and OTC Equity Securities is 

0.17%.32 The average shares per trade 

ratio between NMS Stocks and OTC 

Equity Securities will be recalculated 

every three months when tiers are 

recalculated. 

Based on this, the Operating 

Committee considered the distribution 

of Execution Venues, and grouped 

together Execution Venues with similar 

levels of market share. The percentage 

of costs recovered by each Equity 

Execution Venue tier will be determined 

by predefined percentage allocations 

(the ‘‘Equity Execution Venue Recovery 

Allocation’’). In determining the fixed 

percentage allocation of costs to be 

recovered from each tier, the Operating 

Committee considered the impact of 

CAT Reporter market share activity on 

the CAT System as well as the 

distribution of total market volume 

across Equity Execution Venues while 

seeking to maintain comparable fees 

among the largest CAT Reporters. 

Accordingly, following the 

determination of the percentage of 

Execution Venues in each tier, the 

Operating Committee identified the 

percentage of total market volume for 

each tier based on the historical market 

share upon which Execution Venues 

had been initially ranked. Taking this 

into account along with the resulting 

percentage of total recovery, the 

percentage allocation of cost recovery 

for each tier were assigned, allocating 

higher percentages of recovery to the 

tier with a higher level of market share 

while avoiding any inappropriate 

burden on competition. Furthermore, by 

using percentages of Equity Execution 

Venues and cost recovery per tier, the 

Operating Committee sought to include 

elasticity within the funding model, 

allowing the funding model to respond 

to changes in either the total number of 

Equity Execution Venues or changes in 

market share. 

Based on this analysis, the Operating 

Committee approved the following 

Equity Execution Venue Percentages 

and Recovery Allocations: 

Equity Execution Venue tier 

Percentage 

of Equity 

Execution 

Venues 

Percentage 

of Execution 

Venue 

recovery 

Percentage 

of total 

recovery 

Tier 1 ............................................................................................................................................ 25.00 33.25 8.31 

Tier 2 ............................................................................................................................................ 42.00 25.73 6.43 

Tier 3 ............................................................................................................................................ 23.00 8.00 2.00 


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Equity Execution Venue tier 

Percentage 

of Equity 

Execution 

Venues 

Percentage 

of Execution 

Venue 

recovery 

Percentage 

of total 

recovery 

Tier 4 ............................................................................................................................................ 10.00 0.02 0.01 

Total ...................................................................................................................................... 100 67 16.75 

(II) Listed Options 

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

Plan states that each Execution Venue 

that executes transactions in Listed 

Options will pay a fixed fee depending 

on the Listed Options market share of 

that Execution Venue, with the 

Operating Committee establishing at 

least two and no more than five tiers of 

fixed fees, based on an Execution 

Venue’s Listed Options market share. 

For these purposes, market share will be 

calculated by contract volume. 

In accordance with Section 11.3(a)(ii) 

of the CAT NMS Plan, the Operating 

Committee approved a tiered fee 

structure for Options Execution Venues. 

In determining the tiers, the Operating 

Committee considered the funding 

principles set forth in Section 11.2 of 

the CAT NMS Plan, seeking to create 

funding tiers that take into account the 

relative impact on system resources of 

different Options Execution Venues, 

and that establish comparable fees 

among the CAT Reporters with the most 

Reportable Events. Each Options 

Execution Venue will be placed into one 

of two tiers of fixed fees, based on the 

Execution Venue’s Listed Options 

market share. In choosing two tiers, the 

Operating Committee performed an 

analysis similar to that discussed above 

with regard to Industry Members (other 

than Execution Venue ATSs) to 

determine the number of tiers for 

Options Execution Venues. The 

Operating Committee determined to 

establish two tiers for Options 

Execution Venues, rather than a larger 

number, because the two tiers were 

sufficient to distinguish between the 

smaller number of Options Execution 

Venues based on market share. 

Furthermore, due to the smaller number 

of Options Execution Venues, the 

incorporation of additional Options 

Execution Venue tiers would result in 

significantly higher fees for Tier 1 

Options Execution Venues and reduce 

comparability between Execution 

Venues and Industry Members. 

Furthermore, the selection of two tiers 

served to establish comparable fees 

among the largest CAT Reporters. 

Each Options Execution Venue will 

be ranked by market share and tiered by 

predefined Execution Venue 

percentages, (the ‘‘Options Execution 

Venue Percentages’’). To determine the 

fixed percentage of Options Execution 

Venues in each tier, the Operating 

Committee analyzed the historical and 

publicly available market share of 

Options Execution Venues to group 

Options Execution Venues with similar 

market shares across the tiers. Options 

Execution Venue market share of share 

volume were sourced from market 

statistics made publicly-available by 

Bats. The process for developing the 

Options Execution Venue Percentages 

was the same as discussed above with 

regard to Equity Execution Venues. 

The percentage of costs to be 

recovered from each Options Execution 

Venue tier will be determined by 

predefined percentage allocations (the 

‘‘Options Execution Venue Recovery 

Allocation’’). In determining the fixed 

percentage allocation of cost recovery 

for each tier, the Operating Committee 

considered the impact of CAT Reporter 

market share activity on the CAT 

System as well as the distribution of 

total market volume across Options 

Execution Venues while seeking to 

maintain comparable fees among the 

largest CAT Reporters. Furthermore, by 

using percentages of Options Execution 

Venues and cost recovery per tier, the 

Operating Committee sought to include 

elasticity within the funding model, 

allowing the funding model to respond 

to changes in either the total number of 

Options Execution Venues or changes in 

market share. The process for 

developing the Options Execution 

Venue Recovery Allocation was the 

same as discussed above with regard to 

Equity Execution Venues. 

Based on this analysis, the Operating 

Committee approved the following 

Options Execution Venue Percentages 

and Recovery Allocations: 

Options Execution Venue tier 

Percentage 

of Options 

Execution 

Venues 

Percentage 

of Execution 

Venue 

recovery 

Percentage 

of total 

recovery 

Tier 1 ............................................................................................................................................ 75.00 28.25 7.06 

Tier 2 ............................................................................................................................................ 25.00 4.75 1.19 

Total ...................................................................................................................................... 100 33 8.25 

(III) Market Share/Tier Assignments 

The Operating Committee determined 

that, prior to the start of CAT reporting, 

market share for Execution Venues 

would be sourced from publiclyavailable market data. Options and 

equity volumes for Participants will be 

sourced from market data made publicly 

available by Bats while Execution 

Venue ATS volumes will be sourced 

from market data made publicly 

available by FINRA and OTC Markets. 

Set forth in Appendix B to this letter are 

two charts, one listing the current 

Equity Execution Venues, each with its 

rank and tier, and one listing the current 

Options Execution Venues, each with its 

rank and tier. 

After the commencement of CAT 

reporting, market share for Execution 

Venues will be sourced from data 

reported to the CAT. Equity Execution 

Venue market share will be determined 

by calculating each Equity Execution 

Venue’s proportion of the total volume 

of NMS Stock and OTC Equity shares 

reported by all Equity Execution Venues 

during the relevant time period (with 

the discounting of OTC Equity 

Securities market share of Execution 

Venue ATSs trading OTC Equity 

Securities as well as the market share of 


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33 It is anticipated that CAT-related costs incurred 

prior to November 21, 2016 will be addressed via 

a separate filing. 

the FINRA ORF, as described above). 

Similarly, market share for Options 

Execution Venues will be determined by 

calculating each Options Execution 

Venue’s proportion of the total volume 

of Listed Options contracts reported by 

all Options Execution Venues during 

the relevant time period. 

The Operating Committee has 

determined to calculate fee tiers for 

Execution Venues every three months 

based on market share from the prior 

three months. Based on its analysis of 

historical data, the Operating Committee 

believes calculating tiers based on three 

months of data will provide the best 

balance between reflecting changes in 

activity by Execution Venues while still 

providing predictability in the tiering 

for Execution Venues. 

(D) Allocation of Costs 

In addition to the funding principles 

discussed above, including 

comparability of fees, Section 11.1(c) of 

the CAT NMS Plan also requires 

expenses to be fairly and reasonably 

shared among the Participants and 

Industry Members. Accordingly, in 

developing the proposed fee schedules 

pursuant to the funding model, the 

Operating Committee calculated how 

the CAT costs would be allocated 

between Industry Members and 

Execution Venues, and how the portion 

of CAT costs allocated to Execution 

Venues would be allocated between 

Equity Execution Venues and Options 

Execution Venues. These 

determinations are described below. 

(I) Allocation Between Industry 

Members and Execution Venues 

In determining the cost allocation 

between Industry Members (other than 

Execution Venue ATSs) and Execution 

Venues, the Operating Committee 

analyzed a range of possible splits for 

revenue recovery from such Industry 

Members and Execution Venues, 

including 80%/20%, 75%/25%, 70%/ 

30% and 65%/35% allocations. Based 

on this analysis, the Operating 

Committee determined that 75 percent 

of total costs recovered would be 

allocated to Industry Members (other 

than Execution Venue ATSs) and 25 

percent would be allocated to Execution 

Venues. The Operating Committee 

determined that this 75%/25% division 

maintained the greatest level of 

comparability across the funding model. 

For example, the cost allocation 

establishes fees for the largest Industry 

Members (i.e., those Industry Members 

in Tiers 1) that are comparable to the 

largest Equity Execution Venues and 

Options Execution Venues (i.e., those 

Execution Venues in Tier 1). 

Furthermore, the allocation of total 

CAT cost recovery recognizes the 

difference in the number of CAT 

Reporters that are Industry Members 

versus CAT Reporters that are Execution 

Venues. Specifically, the cost allocation 

takes into consideration that there are 

approximately 23 times more Industry 

Members expected to report to the CAT 

than Execution Venues (e.g., an 

estimated 1541 Industry Members 

versus 67 Execution Venues as of June 

2017). 

(II) Allocation Between Equity 

Execution Venues and Options 

Execution Venues 

The Operating Committee also 

analyzed how the portion of CAT costs 

allocated to Execution Venues would be 

allocated between Equity Execution 

Venues and Options Execution Venues. 

In considering this allocation of costs, 

the Operating Committee analyzed a 

range of alternative splits for revenue 

recovered between Equity and Options 

Execution Venues, including a 70%/ 

30%, 67%/33%, 65%/35%, 50%/50% 

and 25%/75% split. Based on this 

analysis, the Operating Committee 

determined to allocate 67 percent of 

Execution Venue costs recovered to 

Equity Execution Venues and 33 percent 

to Options Execution Venues. The 

Operating Committee determined that a 

67%/33% allocation between Equity 

and Options Execution Venues 

maintained the greatest level of fee 

equitability and comparability based on 

the current number of Equity and 

Options Execution Venues. For 

example, the allocation establishes fees 

for the larger Equity Execution Venues 

that are comparable to the larger 

Options Execution Venues. Specifically, 

Tier 1 Equity Execution Venues would 

pay a quarterly fee of $81,047 and Tier 

1 Options Execution Venues would pay 

a quarterly fee of $81,379. In addition to 

fee comparability between Equity 

Execution Venues and Options 

Execution Venues, the allocation also 

establishes equitability between larger 

(Tier 1) and smaller (Tier 2) Execution 

Venues based upon the level of market 

share. Furthermore, the allocation is 

intended to reflect the relative levels of 

current equity and options order events. 

(E) Fee Levels 

The Operating Committee determined 

to establish a CAT-specific fee to 

collectively recover the costs of building 

and operating the CAT. Accordingly, 

under the funding model, the sum of the 

CAT Fees is designed to recover the 

total cost of the CAT. The Operating 

Committee has determined overall CAT 

costs to be comprised of Plan Processor 

costs and non-Plan Processor costs, 

which are estimated to be $50,700,000 

in total for the year beginning November 

21, 2016.33

The Plan Processor costs relate to 

costs incurred and to be incurred 

through November 21, 2017 by the Plan 

Processor and consist of the Plan 

Processor’s current estimates of average 

yearly ongoing costs, including 

development costs, which total 

$37,500,000. This amount is based upon 

the fees due to the Plan Processor 

pursuant to the Company’s agreement 

with the Plan Processor. 

The non-Plan Processor estimated 

costs incurred and to be incurred by the 

Company through November 21, 2017 

consist of three categories of costs. The 

first category of such costs are third 

party support costs, which include legal 

fees, consulting fees and audit fees from 

November 21, 2016 until the date of 

filing as well as estimated third party 

support costs for the rest of the year. 

These amount to an estimated 

$5,200,000. The second category of nonPlan Processor costs are estimated 

cyber-insurance costs for the year. Based 

on discussions with potential cyberinsurance providers, assuming $2–5 

million cyber-insurance premium on 

$100 million coverage, the Company has 

estimated $3,000,000 for the annual 

cost. The final cost figures will be 

determined following receipt of final 

underwriter quotes. The third category 

of non-Plan Processor costs is the CAT 

operational reserve, which is comprised 

of three months of ongoing Plan 

Processor costs ($9,375,000), third party 

support costs ($1,300,000) and cyberinsurance costs ($750,000). The 

Operating Committee aims to 

accumulate the necessary funds to 

establish the three-month operating 

reserve for the Company through the 

CAT Fees charged to CAT Reporters for 

the year. On an ongoing basis, the 

Operating Committee will account for 

any potential need to replenish the 

operating reserve or other changes to 

total cost during its annual budgeting 

process. The following table 

summarizes the Plan Processor and nonVerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 E:\FR\FM\11JAN1.SGM 11JAN1

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Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 1409 

34This $5,000,000 represents the gradual 

accumulation of the funds for a target operating 

reserve of $11,425,000. 

35Note that all monthly, quarterly and annual 

CAT Fees have been rounded to the nearest dollar. 

Plan Processor cost components which comprise the total estimated CAT costs 

of $50,700,000 for the covered period. 

Cost category Cost component Amount 

Plan Processor ............................................................................ Operational Costs ...................................................................... $37,500,000 

Non-Plan Processor .................................................................... Third Party Support Costs ......................................................... 5,200,000 

Operational Reserve .................................................................. 5,000,000 34

Cyber-insurance Costs .............................................................. 3,000,000 

Estimated Total .................................................................... .................................................................................................... $50,700,000 

Based on these estimated costs and 

the calculations for the funding model 

described above, the Operating 

Committee determined to impose the 

following fees: 35

For Industry Members (other than 

Execution Venue ATSs): 

Tier 

Percentage 

of Industry 

Members 

Quarterly 

CAT fee 

1 ............................................................................................................................................................................... 0.900 $81,483 

2 ............................................................................................................................................................................... 2.150 59,055 

3 ............................................................................................................................................................................... 2.800 40,899 

4 ............................................................................................................................................................................... 7.750 25,566 

5 ............................................................................................................................................................................... 8.300 7,428 

6 ............................................................................................................................................................................... 18.800 1,968 

7 ............................................................................................................................................................................... 59.300 105 

For Execution Venues for NMS Stocks 

and OTC Equity Securities: 

Tier 

Percentage 

of Equity 

Execution 

Venues 

Quarterly 

CAT fee 

1 ............................................................................................................................................................................... 25.00 $81,048 

2 ............................................................................................................................................................................... 42.00 37,062 

3 ............................................................................................................................................................................... 23.00 21,126 

4 ............................................................................................................................................................................... 10.00 129 

For Execution Venues for Listed 

Options: 

Tier 

Percentage 

of Options 

Execution 

Venues 

Quarterly 

CAT fee 

1 ............................................................................................................................................................................... 75.00 $81,381 

2 ............................................................................................................................................................................... 25.00 37,629 

The Operating Committee has 

calculated the schedule of effective fees 

for Industry Members (other than 

Execution Venue ATSs) and Execution 

Venues in the following manner. Note 

that the calculation of CAT Fees 

assumes 52 Equity Execution Venues, 

15 Options Execution Venues and 1,541 

Industry Members (other than Execution 

Venue ATSs) as of June 2017. 


srobinson on DSK9F5VC42PROD with NOTICES
1410 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 

CALCULATION OF ANNUAL TIER FEES FOR INDUSTRY MEMBERS (‘‘IM’’) 

Industry Member tier 

Percentage 

of Industry 

Members 

Percentage 

of Industry 

Member 

recovery 

Percentage 

of total 

recovery 

Tier 1 ............................................................................................................................................ 0.900 12.00 9.00 

Tier 2 ............................................................................................................................................ 2.150 20.50 15.38 

Tier 3 ............................................................................................................................................ 2.800 18.50 13.88 

Tier 4 ............................................................................................................................................ 7.750 32.00 24.00 

Tier 5 ............................................................................................................................................ 8.300 10.00 7.50 

Tier 6 ............................................................................................................................................ 18.800 6.00 4.50 

Tier 7 ............................................................................................................................................ 59.300 1.00 0.75 

Total ...................................................................................................................................... 100 100 75 

Industry Member tier 

Estimated 

number of 

Industry 

Members 

Tier 1 .................................................................................................................................................................................................... 14 

Tier 2 .................................................................................................................................................................................................... 33 

Tier 3 .................................................................................................................................................................................................... 43 

Tier 4 .................................................................................................................................................................................................... 119 

Tier 5 .................................................................................................................................................................................................... 128 

Tier 6 .................................................................................................................................................................................................... 290 

Tier 7 .................................................................................................................................................................................................... 914 

Total .............................................................................................................................................................................................. 1,541 

BILLING CODE 8001–01–P 


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Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 1411 

BILLING CODE 8001–01–C 

CALCULATION OF ANNUAL TIER FEES FOR EQUITY EXECUTION VENUES (‘‘EV’’) 

Equity Execution Venue tier 

Percentage 

of Equity 

Execution 

Venues 

Percentage 

of Execution 

Venue 

recovery 

Percentage 

of total 

recovery 

Tier 1 ............................................................................................................................................ 25.00 33.25 8.31 


srobinson on DSK9F5VC42PROD with NOTICESEN11JA18.001</GPH>

Calculation 1.1 (Calculation of a Tier 1 Industry Member Monthly Fee) 

1,541 [Estimated Tot. /Ms] x 0.9% [%of Tier 1 /Ms] = 14 [Estimated Tier 1 /Ms] 

(

$50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of TotAnn.CAT Costs]X12% [%of Tier liM Recovery]) 12 [M th ] = $27,

161 14 [Estimated Tier liMs] 7 on s per year 

Calculation 1.2 (Calculation of a Tier 2 Industry Member Monthly Fee) 

1,541 [Estimated Tot. /Ms] x 2.15% [%of Tier 2 /Ms] = 33 [Estimated Tier 2 /Ms] 

(

$50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of TotAnn.CAT Costs]X20.5% [%of Tier 2IM Recovery]) 7 12 [Months er ear] = $19,685 33 [Estimated Tier 2IMs] p Y 

Calculation 1.3 (Calculation of a Tier 3 Industry Member Monthly Fee) 

1,541 [Estimated Tot./Ms] x 2.125% [%of Tier 3 /Ms] = 43 [Estimated Tier 3 /Ms] 

(

$50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of TotAnn.CAT Costs]X18.5% [%of Tier 3IM Recovery]) 7 12 [Months er ear] = $13,633 43 [Estimated Tier 3IMs] p Y 

Calculation 1.4 (Calculation of a Tier 4 Industry Member Monthly Fee) 

1,541 [Estimated Tot. /Ms] x 7.75% [%of Tier 4 /Ms] = 119 [Estimated Tier 4 /Ms] 

(

$50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of Tot.Ann.CAT Costs]X32% [%of Tier 4IM Recovery]) 7 12 [Months er ear] = $8522 119 [Estimated Tier 4IMs] p Y 

Calculation 1.5 (Calculation of a Tier 5 Industry Member Annual Fee) 

1,541 [Estimated Tot. /Ms] x 8.3% [%of Tier 5 /Ms] = 128 [Estimated Tier 5 /Ms] 

(

$50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of TotAnn.CAT Costs]X7.75% [%of Tier 5 IM Recovery]) 7 12 [Months er ear] = $2476 128 [Estimated Tier 5 IMs] p Y 

Calculation 1.6 (Calculation of a Tier 6 Industry Member Monthly Fee) 

1,541 [Estimated Tot. /Ms] x 18.8% [%of Tier 6 /Ms] = 290 [Estimated Tier 6 /Ms] 

(

$50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of TotAnn.CAT Costs]X6% [%of Tier 6IM Recovery]) 7 12 [Months er ear] = $656 290 [Estimated Tier 6IMs] p Y 

Calculation 1.7 (Calculation of a Tier 7 Industry Member Monthly Fee) 

1,541 [Estimated Tot. /Ms] x 59.3% [%of Tier 7 /Ms] = 914 [Estimated Tier 7 /Ms] 

(

$50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of TotAnn.CAT Costs]Xl% [%of Tier 7 IM Recovery]) 12 [M th ] $

35 914 [Estimated Tier 7 IMs] 7 on s per year = 
1412 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 

CALCULATION OF ANNUAL TIER FEES FOR EQUITY EXECUTION VENUES (‘‘EV’’)—Continued 

Equity Execution Venue tier 

Percentage 

of Equity 

Execution 

Venues 

Percentage 

of Execution 

Venue 

recovery 

Percentage 

of total 

recovery 

Tier 2 ............................................................................................................................................ 42.00 25.73 6.43 

Tier 3 ............................................................................................................................................ 23.00 8.00 2.00 

Tier 4 ............................................................................................................................................ 10.00 49.00 0.01 

Total ...................................................................................................................................... 100 67 16.75 

Equity Execution Venue tier 

Estimated 

number of 

Equity 

Execution 

Venues 

Tier 1 .............................................................................................................................................................................................. 13 

Tier 2 .............................................................................................................................................................................................. 22 

Tier 3 .............................................................................................................................................................................................. 12 

Tier 4 .............................................................................................................................................................................................. 5 

Total ........................................................................................................................................................................................ 52 

BILLING CODE 8001–01–P 


srobinson on DSK9F5VC42PROD with NOTICES
Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 1413 

BILLING CODE 8001–01–C 

CALCULATION OF ANNUAL TIER FEES FOR OPTIONS EXECUTION VENUES (‘‘EV’’) 

Options Execution Venue tier 

Percentage 

of Options 

Execution 

Venues 

Percentage 

of Execution 

Venue 

recovery 

Percentage 

of total 

recovery 

Tier 1 ............................................................................................................................................ 75.00 28.25 7.06 

Tier 2 ............................................................................................................................................ 25.00 4.75 1.19 

Total ...................................................................................................................................... 100 33 8.25 

Options Execution Venue tier 

Estimated 

number of 

Options Execution 

Venues 

Tier 1 .............................................................................................................................................................................................. 11 

Tier 2 .............................................................................................................................................................................................. 4 

Total ........................................................................................................................................................................................ 15 


srobinson on DSK9F5VC42PROD with NOTICESEN11JA18.002</GPH>
1414 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 

36The amount in excess of the total CAT costs 

will contribute to the gradual accumulation of the 

target operating reserve of $11.425 million. 

TRACEABILITY OF TOTAL CAT FEES

Type Industry 

Member tier 

Estimated 

number of 

members 

CAT 

fees paid 

annually 

Total 

recovery 

Industry Members ............................................................................................ Tier 1 ............. 14 $325,932 $4,563,048 

Tier 2 ............. 33 236,220 7,795,260 

Tier 3 ............. 43 163,596 7,034,628 

Tier 4 ............. 119 102,264 12,169,416 

Tier 5 ............. 128 29,712 3,803,136 

Tier 6 ............. 290 7,872 2,282,880 

Tier 7 ............. 914 420 383,880 

Total .......................................................................................................... ........................ 1,541 ........................ 38,032,248 

Equity Execution Venues ................................................................................ Tier 1 ............. 13 324,192 4,214,496 

Tier 2 ............. 22 148,248 3,261,456 

Tier 3 ............. 12 84,504 1,014,048 

Tier 4 ............. 5 516 2,580 

Total .......................................................................................................... ........................ 52 ........................ 8,492,580 

Options Execution Venues .............................................................................. Tier 1 ............. 11 325,524 3,580,764 

Tier 2 ............. 4 150,516 602,064 

Total .......................................................................................................... ........................ 15 ........................ 4,182,828 

Total .................................................................................................. ........................ ........................ ........................ 50,700,000 

Excess 36 ........................................................................................... ........................ ........................ ........................ 7,656 

(F) Comparability of Fees 

The funding principles require a 

funding model in which the fees 

charged to the CAT Reporters with the 

most CAT-related activity (measured by 

market share and/or message traffic, as 

applicable) are generally comparable 

(where, for these comparability 

purposes, the tiered fee structure takes 

into consideration affiliations between 

or among CAT Reporters, whether 

Execution Venue and/or Industry 

Members). Accordingly, in creating the 

model, the Operating Committee sought 

to establish comparable fees for the top 

tier of Industry Members (other than 

Execution Venue ATSs), Equity 

Execution Venues and Options 

Execution Venues. Specifically, each 

Tier 1 CAT Reporter would be required 

to pay a quarterly fee of approximately 

$81,000. 

(G) Billing Onset 

Under Section 11.1(c) of the CAT 

NMS Plan, to fund the development and 

implementation of the CAT, the 

Company shall time the imposition and 

collection of all fees on Participants and 

Industry Members in a manner 

reasonably related to the timing when 

the Company expects to incur such 

development and implementation costs. 

The Company is currently incurring 

such development and implementation 

costs and will continue to do so prior 

to the commencement of CAT reporting 

and thereafter. In accordance with the 

CAT NMS Plan, all CAT Reporters, 

including both Industry Members and 

Execution Venues (including 

Participants), will be invoiced as 

promptly as possible following the latest 


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Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 1415 

37The CAT Fees are designed to recover the costs 

associated with the CAT. Accordingly, CAT Fees 

would not be affected by increases or decreases in 

other non-CAT expenses incurred by the 

Participants, such as any changes in costs related 

to the retirement of existing regulatory systems, 

such as OATS. 

38Section B.7, Appendix C of the CAT NMS Plan, 

Approval Order at 85006. 

of the operative date of this Plan 

amendment, and the related fee filings 

for the Industry Member CAT Fees. 

(H) Changes to Fee Levels and Tiers 

Section 11.3(d) of the CAT NMS Plan 

states that ‘‘[t]he Operating Committee 

shall review such fee schedule on at 

least an annual basis and shall make any 

changes to such fee schedule that it 

deems appropriate. The Operating 

Committee is authorized to review such 

fee schedule on a more regular basis, but 

shall not make any changes on more 

than a semi-annual basis unless, 

pursuant to a Supermajority Vote, the 

Operating Committee concludes that 

such change is necessary for the 

adequate funding of the Company.’’ 

With such reviews, the Operating 

Committee will review the distribution 

of Industry Members and Execution 

Venues across tiers, and make any 

updates to the percentage of CAT 

Reporters allocated to each tier as may 

be necessary. In addition, the reviews 

will evaluate the estimated ongoing 

CAT costs and the level of the operating 

reserve. To the extent that the total CAT 

costs decrease, the fees would be 

adjusted downward, and to the extent 

that the total CAT costs increase, the 

fees would be adjusted upward.37

Furthermore, any surplus of the 

Company’s revenues over its expenses is 

to be included within the operational 

reserve to offset future fees. The 

limitations on more frequent changes to 

the fee, however, are intended to 

provide budgeting certainty for the CAT 

Reporters and the Company.38 To the 

extent that the Operating Committee 

approves changes to the number of tiers 

in the funding model or the fees 

assigned to each tier, then the Operating 

Committee will file such changes with 

the SEC pursuant to Rule 608 of the 

Exchange Act, and the Participants will 

file such changes with the SEC pursuant 

to Section 19(b) of the Exchange Act and 

Rule 19b-4 thereunder, and any such 

changes will become effective in 

accordance with the requirements of 

those provisions. 

(I) Initial and Periodic Tier 

Reassignments 

The Operating Committee has 

determined to calculate fee tiers every 

three months based on market share or 

message traffic, as applicable, from the 

prior three months. For the initial tier 

assignments, the Company will 

calculate the relevant tier for each CAT 

Reporter using the three months of data 

prior to the commencement date. As 

with the initial tier assignment, for the 

tri-monthly reassignments, the 

Company will calculate the relevant tier 

using the three months of data prior to 

the relevant tri-monthly date. Any 

movement of CAT Reporters between 

tiers will not change the criteria for each 

tier or the fee amount corresponding to 

each tier. 

In performing the tri-monthly 

reassignments, the assignment of CAT 

Reporters in each assigned tier is 

relative. Therefore, a CAT Reporter’s 

assigned tier will depend, not only on 

its own message traffic or market share, 

but also on the message traffic/market 

share across all CAT Reporters. For 

example, the percentage of Industry 

Members (other than Execution Venue 

ATSs) in each tier is relative such that 

such Industry Member’s assigned tier 

will depend on message traffic 

generated across all CAT Reporters as 

well as the total number of CAT 

Reporters. The Operating Committee 

will inform CAT Reporters of their 

assigned tier every three months 

following the periodic tiering process, 

as the funding model will compare an 

individual CAT Reporter’s activity to 

that of other CAT Reporters in the 

marketplace. 

The following demonstrates a tier 

reassignment. In accordance with the 

funding model, the top 75% of Options 

Execution Venues in market share are 

categorized as Tier 1 while the bottom 

25% of Options Execution Venues in 

market share are categorized as Tier 2. 

In the sample scenario below, Options 

Execution Venue L is initially 

categorized as a Tier 2 Options 

Execution Venue in Period A due to its 

market share. When market share is 

recalculated for Period B, the market 

share of Execution Venue L increases, 

and it is therefore subsequently 

reranked and reassigned to Tier 1 in 

Period B. Correspondingly, Options 

Execution Venue K, initially a Tier 1 

Options Execution Venue in Period A, 

is reassigned to Tier 2 in Period B due 

to decreases in its market share. 

Period A Period B 

Options Execution Venue Market 

share rank Tier Options Execution Venue Market share rank Tier 

Options Execution Venue A ............. 1 1 Options Execution Venue A ............ 1 1 

Options Execution Venue B ............. 2 1 Options Execution Venue B ............ 2 1 

Options Execution Venue C ............. 3 1 Options Execution Venue C ............ 3 1 

Options Execution Venue D ............. 4 1 Options Execution Venue D ............ 4 1 

Options Execution Venue E ............. 5 1 Options Execution Venue E ............ 5 1 

Options Execution Venue F .............. 6 1 Options Execution Venue F ............. 6 1 

Options Execution Venue G ............. 7 1 Options Execution Venue I .............. 7 1 

Options Execution Venue H ............. 8 1 Options Execution Venue H ............ 8 1 

Options Execution Venue I ............... 9 1 Options Execution Venue G ............ 9 1 

Options Execution Venue J .............. 10 1 Options Execution Venue J ............. 10 1 

Options Execution Venue K ............. 11 1 Options Execution Venue L ............. 11 1 

Options Execution Venue L .............. 12 2 Options Execution Venue K ............ 12 2 

Options Execution Venue M ............. 13 2 Options Execution Venue N ............ 13 2 

Options Execution Venue N ............. 14 2 Options Execution Venue M ............ 14 2 

Options Execution Venue O ............. 15 2 Options Execution Venue O ............ 15 2 

For each periodic tier reassignment, 

the Operating Committee will review 

the new tier assignments, particularly 

those assignments for CAT Reporters 

that shift from the lowest tier to a higher 

tier. This review is intended to evaluate 

whether potential changes to the market 

or CAT Reporters (e.g., dissolution of a 


srobinson on DSK9F5VC42PROD with NOTICES
1416 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 

39Securities Exchange Act Rel. No. 80930 (June 

14, 2017), 82 FR 28180 (June 20, 2017). 

40Securities Exchange Act Rel. No. 81189 (July 

21, 2017), 82 FR 35005 (July 27, 2017) (‘‘Abrogation 

Order’’). 

41For a description of the Industry Member Fee 

Filings and the comments submitted in response to 

those Filings, see Securities Exchange Act Rel. No. 

81067 (June 30, 2017), 82 FR 31656 (July 7, 2017) 

(‘‘Suspension Order’’). 

42Suspension Order. 

43See Letter from Stuart J. Kaswell, Executive 

Vice President, Managing Director and General 

Counsel, Managed Funds Association, to Brent J. 

Fields, Secretary, SEC (July 28, 2017) (‘‘MFA 

Letter’’); Letter from Theodore R. Lazo, Managing 

Director and Associate General Counsel, SIFMA, to 

Brent J. Fields, Secretary, SEC (July 28, 2017) 

(‘‘SIFMA Letter’’); Joanna Mallers, Secretary, FIA 

Principal Traders Group, to Brent J. Fields, 

Secretary, SEC (July 28, 2017) (‘‘FIA Principal 

Traders Group Letter’’); Letter from Kevin Coleman, 

General Counsel & Chief Compliance Officer, 

Belvedere Trading LLC, to Brent J. Fields, Secretary, 

SEC (July 28, 2017) (‘‘Belvedere Letter’’); Letter 

from W. Hardy Callcott, Sidley Austin LLP, to Brent 

J. Fields, Secretary, SEC (July 27, 2017) (‘‘Sidley 

Letter’’); Letter from John Kinahan, Chief Executive 

Officer, Group One Trading, L.P., to Brent J. Fields, 

Secretary, SEC (Aug. 10, 2017) (‘‘Group One 

Letter’’); and Letter from Joseph Molluso, Executive 

Vice President, Virtu Financial, to Brent J. Fields, 

Secretary, SEC (Aug. 18, 2017) (‘‘Virtu Financial 

Letter’’). 

large CAT Reporter) adversely affect the 

tier reassignments. 

(J) Sunset Provision 

The Operating Committee developed 

the proposed funding model by 

analyzing currently available historical 

data. Such historical data, however, is 

not as comprehensive as data that will 

be submitted to the CAT. Accordingly, 

the Operating Committee believes that it 

will be appropriate to revisit the 

funding model once CAT Reporters 

have actual experience with the funding 

model. Accordingly, the Operating 

Committee determined to include an 

automatic sunsetting provision for the 

proposed fees. Specifically, the 

Operating Committee determined to 

include a provision in the proposed fee 

schedule which states that ‘‘[t]hese 

Participant CAT Fees will automatically 

expire two years after their operative 

date.’’ The Operating Committee intends 

to monitor the operation of the funding 

model during this two year period and 

to evaluate its effectiveness during that 

period. Such a process will inform the 

Operating Committee’s approach to 

funding the CAT after the two year 

period. 

(3) Proposed CAT Fee Schedule 

The Operating Committee proposes to 

add Exhibit B to the CAT NMS Plan to 

add a fee schedule setting forth the CAT 

Fees applicable to Participants. 

Proposed Exhibit B is set forth in 

Appendix A to this letter. Paragraph 

(a)(1) of proposed Exhibit B sets forth 

the CAT Fees applicable to Execution 

Venues for NMS Stocks and OTC Equity 

Securities. Specifically, paragraph (a)(1) 

states that the Company will assign each 

Execution Venue for NMS Stocks and/ 

or OTC Equity Securities to a fee tier 

once every quarter, where such tier 

assignment is calculated by ranking 

each such Execution Venue based on its 

total market share (with a discount for 

the OTC Equity Securities market share 

of Execution Venue ATSs trading OTC 

Equity Securities as well as the market 

share of the FINRA OTC reporting 

facility based on the average shares per 

trade ratio between NMS Stocks and 

OTC Equity Securities) for the three 

months prior to the quarterly tier 

calculation day and assigning each such 

Execution Venue to a tier based on that 

ranking and predefined percentages for 

such Execution Venues. The Execution 

Venues for NMS Stocks and/or OTC 

Equity Securities with the higher total 

quarterly market share will be ranked in 

Tier 1, and such Execution Venues with 

the lowest quarterly market share will 

be ranked in Tier 4. Specifically, 

paragraph (a)(1) states that, each quarter, 

each Execution Venue for NMS Stocks 

and/or OTC Equity Securities shall pay 

in the manner prescribed by the 

Company the following CAT Fee 

corresponding to the tier assigned by the 

CAT NMS, LLC for such Execution 

Venue for that quarter: 

Tier 

Percentage 

of Execution 

Venues for 

NMS Stocks 

and/or OTC 

Equity 

Securities 

Quarterly 

CAT fee 

1 ................ 25.00 $81,048 

2 ................ 42.00 37,062 

3 ................ 23.00 21,126 

4 ................ 10.00 129 

In addition, paragraph (a)(2) of the 

proposed Exhibit B states that the 

Company will assign each Execution 

Venue for Listed Options to a fee tier 

once every quarter, where such tier 

assignment is calculated by ranking 

each such Execution Venue based on its 

total market share for the three months 

prior to the quarterly tier calculation 

day and assigning each such Execution 

Venue to a tier based on that ranking 

and predefined percentages for such 

Execution Venues. The Execution 

Venues for Listed Options with the 

higher total quarterly market share will 

be ranked in Tier 1, and such Execution 

Venues with the lower quarterly market 

share will be ranked in Tier 2. 

Specifically, paragraph (b)(1) states that, 

each quarter, each Execution Venue for 

Listed Options shall pay in the manner 

prescribed by the Company the 

following CAT Fee corresponding to the 

tier assigned by the CAT NMS, LLC for 

such Execution Venue for that quarter: 

Tier 

Percentage 

of Execution 

Venues for 

Listed 

Options 

Quarterly 

CAT fee 

1 ................ 75.00 $81,381 

2 ................ 25.00 37,629 

(4) Changes to Prior CAT Fee Plan 

Amendment 

The proposed funding model set forth 

in this amendment is a revised version 

of the Plan amendment filed with the 

Commission on May 9, 2017 (‘‘Original 

Proposal’’).39 The Commission 

abrogated the Original Proposal on July 

21, 2017.40 Although the Original 

Proposal did not receive any comments, 

the Commission received a number of 

comment letters in response to the 

Participants’ proposed rule changes to 

adopt CAT Fees to be charged to 

Industry Members, including Industry 

Members that are Execution Venue 

ATSs (‘‘Industry Member Fee 

Filings’’).41 Because the text of the 

Industry Member Fee Filings is 

substantially similar to the Original 

Proposal, the SEC believed that the 

comments were relevant to the Original 

Proposal and summarized them in the 

Abrogation Order. In addition, the SEC 

suspended the Industry Member Fee 

Filings and instituted proceedings to 

determine whether to approve or 

disapprove the Industry Member Fee 

Filings.42 Pursuant to those 

proceedings, additional comment letters 

were submitted regarding the proposed 

funding model.43 In developing this 

Amendment No. 4, the Operating 

Committee carefully considered these 

comments and made a number of 

changes to the Original Proposal to 

address these comments where 

appropriate. 

This Amendment No. 4 makes the 

following changes to the Original 

Proposal: (1) Adds two additional CAT 

Fee tiers for Equity Execution Venues; 

(2) discounts the OTC Equity Securities 

market share of Execution Venue ATSs 

trading OTC Equity Securities as well as 

the market share of the FINRA ORF by 

the average shares per trade ratio 

between NMS Stocks and OTC Equity 

Securities (calculated as 0.17% based on 

available data from the second quarter 

of 2017) when calculating the market 

share of Execution Venue ATSs trading 

OTC Equity Securities and FINRA; (3) 

discounts the Options Market Maker 


srobinson on DSK9F5VC42PROD with NOTICES
Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 1417 

44See Abrogation Order at 35012; SIFMA Letter 

at 3. 

45Note that while these equity market share 

thresholds were referenced as data points to help 

differentiate between Equity Execution Venue tiers, 

the proposed funding model is directly driven not 

by market share thresholds, but rather by fixed 

percentages of Equity Execution Venues across tiers 

to account for fluctuating levels of market share 

across time. Actual market share in any tier will 

vary based on the actual market activity in a given 

measurement period, as well as the number of 

Equity Execution Venues included in the 

measurement period. 46Section 11.2(b) of the CAT NMS Plan. 

quotes by the trade to quote ratio for 

options (calculated as 0.01% based on 

available data for June 2016 through 

June 2017) when calculating message 

traffic for Options Market Makers; (4) 

discounts equity market maker quotes 

by the trade to quote ratio for equities 

(calculated as 5.43% based on available 

data for June 2016 through June 2017) 

when calculating message traffic for 

equity market makers; (5) decreases the 

number of tiers for Industry Members 

(other than the Equity ATSs) from nine 

to seven; (6) changes the allocation of 

CAT costs between Equity Execution 

Venues and Options Execution Venues 

from 75%/25% to 67%/33%; (7) adjusts 

tier percentages and recovery 

allocations for Equity Execution Venues, 

Options Execution Venues and Industry 

Members (other than Execution Venue 

ATSs); (8) focuses the comparability of 

CAT Fees on the individual entity level, 

rather than primarily on the 

comparability of affiliated entities; (9) 

commences invoicing of CAT Reporters 

as promptly as possible following the 

latest of the operative date of the 

Consolidated Audit Trail Funding Fees 

for each of the Participants as set forth 

in the Industry Member Fee Filings and 

the operative date of the CAT NMS Plan 

amendment adopting CAT Fees for 

Participants; and (10) requires the 

proposed fees to automatically expire 

two years from their operative date. 

(A) Equity Execution Venues 

(i) Small Equity Execution Venues 

In the Original Proposal, the 

Operating Committee proposed to 

establish two fee tiers for Equity 

Execution Venues. The Commission and 

commenters raised the concern that, by 

establishing only two tiers, smaller 

Equity Execution Venues (e.g., those 

Equity ATSs representing less than 1% 

of NMS market share) would be placed 

in the same fee tier as larger Equity 

Execution Venues, thereby imposing an 

undue or inappropriate burden on 

competition.44 To address this concern, 

the Operating Committee proposes to 

add two additional tiers for Equity 

Execution Venues, a third tier for 

smaller Equity Execution Venues and a 

fourth tier for the smallest Equity 

Execution Venues. 

Specifically, the Original Proposal 

had two tiers of Equity Execution 

Venues. Tier 1 required the largest 

Equity Execution Venues to pay a 

quarterly fee of $63,375. Based on 

available data, these largest Equity 

Execution Venues were those that had 

equity market share of share volume 

greater than or equal to 1%.45 Tier 2 

required the remaining smaller Equity 

Execution Venues to pay a quarterly fee 

of $38,820. 

To address concerns about the 

potential for the $38,820 quarterly fee to 

impose an undue burden on smaller 

Equity Execution Venues, the Operating 

Committee determined to move to a four 

tier structure for Equity Execution 

Venues. Tier 1 would continue to 

include the largest Equity Execution 

Venues by share volume (that is, based 

on currently available data, those with 

market share of equity share volume 

greater than or equal to one percent), 

and these Equity Execution Venues 

would be required to pay a quarterly fee 

of $81,048. The Operating Committee 

determined to divide the original Tier 2 

into three tiers. The new Tier 2 Equity 

Execution Venues, which would 

include the next largest Equity 

Execution Venues by equity share 

volume, would be required to pay a 

quarterly fee of $37,062. The new Tier 

3 Equity Execution Venues would be 

required to pay a quarterly fee of 

$21,126. The new Tier 4 Equity 

Execution Venues, which would 

include the smallest Equity Execution 

Venues by share volume, would be 

required to pay a quarterly fee of $129. 

In developing the proposed four tier 

structure, the Operating Committee 

considered keeping the existing two 

tiers, as well as shifting to three, four or 

five Equity Execution Venue tiers (the 

maximum number of tiers permitted 

under the Plan), to address the concerns 

regarding small Equity Execution 

Venues. For each of the two, three, four 

and five tier alternatives, the Operating 

Committee considered the assignment of 

various percentages of Equity Execution 

Venues to each tier as well as various 

percentage of Equity Execution Venue 

recovery allocations for each alternative. 

As discussed below in more detail, each 

of these options was considered in the 

context of the full model, as changes in 

each variable in the model affect other 

variables in the model when allocating 

the total CAT costs among CAT 

Reporters. The Operating Committee 

determined that the four tier alternative 

addressed the spectrum of different 

Equity Execution Venues. The 

Operating Committee determined that 

neither a two tier structure nor a three 

tier structure sufficiently accounted for 

the range of market shares of smaller 

Equity Execution Venues. The 

Operating Committee also determined 

that, given the limited number of Equity 

Execution Venues, that a fifth tier was 

unnecessary to address the range of 

market shares of the Equity Execution 

Venues. 

By increasing the number of tiers for 

Equity Execution Venues and reducing 

the proposed CAT Fees for the smaller 

Equity Execution Venues, the Operating 

Committee believes that the proposed 

fees for Equity Execution Venues would 

not impose an undue or inappropriate 

burden on competition under Section 6 

or Section 15A of the Exchange Act. 

Moreover, the Operating Committee 

believes that the proposed fees 

appropriately take into account the 

distinctions in the securities trading 

operations of different Equity Execution 

Venues, as required under the funding 

principles of the CAT NMS Plan.46 The 

larger number of tiers more closely 

tracks the variety of sizes of equity share 

volume of Equity Execution Venues. In 

addition, the reduction in the fees for 

the smaller Equity Execution Venues 

recognizes the potential burden of larger 

fees on smaller entities. In particular, 

the very small quarterly fee of $129 for 

Tier 4 Equity Execution Venues reflects 

the fact that certain Equity Execution 

Venues have a very small share volume 

due to their typically more focused 

business models. 

Accordingly, Amendment No. 4 

proposes to amend paragraph (a)(1) of 

the proposed fee schedule as set forth in 

the Original Proposal to add the two 

additional tiers for Equity Execution 

Venues, to establish the percentages and 

fees for Tiers 3 and 4 as described, and 

to revise the percentages and fees for 

Tiers 1 and 2 as described. 

(ii) Execution Venues for OTC Equity 

Securities 

In the Original Proposal, the 

Operating Committee proposed to group 

Execution Venues for OTC Equity 

Securities and Execution Venues for 

NMS Stocks in the same tier structure. 

The Commission and commenters 

raised concerns as to whether this 

determination to place Execution 

Venues for OTC Equity Securities in the 

same tier structure as Execution Venues 

for NMS Stocks would result in an 

undue or inappropriate burden on 

competition, recognizing that the 

application of share volume may lead to 

different outcomes as applied to OTC 


srobinson on DSK9F5VC42PROD with NOTICES
1418 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 

47See Abrogation Order at 35012–3. 

48Abrogation Order at 35012. 

49Section 11.2(b) of the CAT NMS Plan. 

50See Abrogation Order at 35011; SIFMA Letter 

at 4–6; FIA Principal Traders Group Letter at 3; 

Sidley Letter at 2–6; Group One Letter at 2–6; and 

Belvedere Letter at 2. 

Equity Securities and NMS Stocks.47 To 

address this concern, the Operating 

Committee proposes to discount the 

OTC Equity Securities market share of 

Execution Venue ATSs trading OTC 

Equity Securities as well as the market 

share of the FINRA ORF by the average 

shares per trade ratio between NMS 

Stocks and OTC Equity Securities 

(0.17% for the second quarter of 2017) 

in order to adjust for the greater number 

of shares being traded in the OTC Equity 

Securities market, which is generally a 

function of a lower per share price for 

OTC Equity Securities when compared 

to NMS Stocks. 

As commenters noted, many OTC 

Equity Securities are priced at less than 

one dollar—and a significant number at 

less than one penny—and low-priced 

shares tend to trade in larger quantities. 

Accordingly, a disproportionately large 

number of shares are involved in 

transactions involving OTC Equity 

Securities versus NMS Stocks, which 

has the effect of overstating an 

Execution Venue’s true market share 

when the Execution Venue is involved 

in the trading of OTC Equity Securities. 

Because the proposed fee tiers are based 

on market share calculated by share 

volume, Execution Venue ATSs trading 

OTC Equity Securities and FINRA may 

be subject to higher tiers than their 

operations may warrant.48 The 

Operating Committee proposes to 

address this concern in two ways. First, 

the Operating Committee proposes to 

increase the number of Equity Execution 

Venue tiers, as discussed above. Second, 

the Operating Committee determined to 

discount the OTC Equity Securities 

market share of Execution Venue ATSs 

trading OTC Equity Securities as well as 

the market share of the FINRA ORF 

when calculating their tier placement. 

Because the disparity in share volume 

between Execution Venues trading in 

OTC Equity Securities and NMS Stocks 

is based on the different number of 

shares per trade for OTC Equity 

Securities and NMS Stocks, the 

Operating Committee believes that 

discounting the OTC Equity Securities 

share volume of such Execution Venue 

ATSs as well as the market share of the 

FINRA ORF would address the 

difference in shares per trade for OTC 

Equity Securities and NMS Stocks. 

Specifically, the Operating Committee 

proposes to impose a discount based on 

the objective measure of the average 

shares per trade ratio between NMS 

Stocks and OTC Equity Securities. 

Based on available data from the second 

quarter of 2017, the average shares per 

trade ratio between NMS Stocks and 

OTC Equity Securities is 0.17%. 

The practical effect of applying such 

a discount for trading in OTC Equity 

Securities is to shift Execution Venue 

ATSs trading OTC Equity Securities to 

tiers for smaller Execution Venues and 

with lower fees. For example, under the 

Original Proposal, one Execution Venue 

ATS trading OTC Equity Securities was 

placed in the first CAT Fee tier, which 

had a quarterly fee of $63,375. With the 

imposition of the proposed tier changes 

and the discount, this ATS would be 

ranked in Tier 3 and would owe a 

quarterly fee of $21,126. 

In developing the proposed discount 

for Equity Execution Venue ATSs 

trading OTC Equity Securities and 

FINRA, the Operating Committee 

evaluated different alternatives to 

address the concerns related to OTC 

Equity Securities, including creating a 

separate tier structure for Execution 

Venues trading OTC Equity Securities 

(like the separate tier for Options 

Execution Venues) as well as the 

proposed discounting method for 

Execution Venue ATSs trading OTC 

Equity Securities and FINRA. For these 

alternatives, the Operating Committee 

considered how each alternative would 

affect the recovery allocations. In 

addition, each of these options was 

considered in the context of the full 

model, as changes in each variable in 

the model affect other variables in the 

model when allocating the total CAT 

costs among CAT Reporters. The 

Operating Committee did not adopt a 

separate tier structure for Equity 

Execution Venues trading OTC Equity 

Securities as they determined that the 

proposed discount approach 

appropriately addresses the concern. 

The Operating Committee determined to 

adopt the proposed discount because it 

directly relates to the concern regarding 

the trading patterns and operations in 

the OTC Equity Securities markets, and 

is an objective discounting method. 

By increasing the number of tiers for 

Equity Execution Venues and imposing 

a discount on the market share of share 

volume calculation for trading in OTC 

Equity Securities, the Operating 

Committee believes that the proposed 

fees for Equity Execution Venues would 

not impose an undue or inappropriate 

burden on competition under Section 6 

or Section 15A of the Exchange Act. 

Moreover, the Operating Committee 

believes that the proposed fees 

appropriately take into account the 

distinctions in the securities trading 

operations of different Equity Execution 

Venues, as required under the funding 

principles of the CAT NMS Plan.49 As 

discussed above, the larger number of 

tiers more closely tracks the variety of 

sizes of equity share volume of Equity 

Execution Venues. In addition, the 

proposed discount recognizes the 

different types of trading operations at 

Equity Execution Venues trading OTC 

Equity Securities versus those trading 

NMS Stocks, thereby more closing 

matching the relative revenue 

generation by Equity Execution Venues 

trading OTC Equity Securities to their 

CAT Fees. 

Accordingly, Amendment No. 4 

proposes to amend paragraph (a)(1) of 

the proposed fee schedule as set forth in 

the Original Proposal to indicate that 

the OTC Equity Securities market share 

for Execution Venue ATSs trading OTC 

Equity Securities as well as the market 

share of the FINRA ORF would be 

discounted. In addition, as discussed 

above, to address concerns related to 

smaller ATSs, including those that trade 

OTC Equity Securities, the Operating 

Committee proposes to amend 

paragraph (a)(1) of the proposed fee 

schedule to add two additional tiers for 

Equity Execution Venues, to establish 

the percentages and fees for Tiers 3 and 

4 as described, and to revise the 

percentages and fees for Tiers 1 and 2 

as described. 

(B) Market Makers 

In the Original Proposal, the 

Operating Committee proposed to 

include both Options Market Maker 

quotes and equities market maker 

quotes in the calculation of total 

message traffic for such market makers 

for purposes of tiering for Industry 

Members (other than Execution Venue 

ATSs). The Commission and 

commenters raised questions as to 

whether the proposed treatment of 

Options Market Maker quotes may 

result in an undue or inappropriate 

burden on competition or may lead to 

a reduction in market quality.50 To 

address this concern, the Operating 

Committee determined to discount the 

Options Market Maker quotes by the 

trade to quote ratio for options when 

calculating message traffic for Options 

Market Makers. Similarly, to avoid 

disincentives to quoting behavior on the 

equities side as well, the Operating 

Committee determined to discount 

equity market maker quotes by the trade 

to quote ratio for equities when 


srobinson on DSK9F5VC42PROD with NOTICES
Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 1419 

51Abrogation Order at 35012. 52Section 11.2(b) of the CAT NMS Plan. 

53See Abrogation Order at 35010–13; SIFMA 

Letter at 3; Sidley Letter at 6–7; Group One Letter 

at 2; and Belvedere Letter at 2. 

calculating message traffic for equities 

market makers. 

In the Original Proposal, market 

maker quotes were treated the same as 

other message traffic for purposes of 

tiering for Industry Members (other than 

Execution Venue ATSs). Commenters 

noted, however, that charging Industry 

Members on the basis of message traffic 

will impact market makers 

disproportionately because of their 

continuous quoting obligations. 

Moreover, in the context of options 

market makers, message traffic would 

include bids and offers for every listed 

options strikes and series, which are not 

an issue for equities.51 The Operating 

Committee proposes to address this 

concern in two ways. First, the 

Operating Committee proposes to 

discount Options Market Maker quotes 

when calculating the Options Market 

Makers’ tier placement. Specifically, the 

Operating Committee proposes to 

impose a discount based on the 

objective measure of the trade to quote 

ratio for options. Based on available 

data from June 2016 through June 2017, 

the trade to quote ratio for options is 

0.01%. Second, the Operating 

Committee proposes to discount 

equities market maker quotes when 

calculating the equities market makers’ 

tier placement. Specifically, the 

Operating Committee proposes to 

impose a discount based on the 

objective measure of the trade to quote 

ratio for equities. Based on available 

data for June 2016 through June 2017, 

this trade to quote ratio for equities is 

5.43%. 

The practical effect of applying such 

discounts for quoting activity is to shift 

market makers’ calculated message 

traffic lower, leading to the potential 

shift to tiers for lower message traffic 

and reduced fees. Such an approach 

would move sixteen Industry Member 

CAT Reporters that are market makers to 

a lower tier than in the Original 

Proposal. For example, under the 

Original Proposal, Broker-Dealer Firm 

ABC was placed in the first CAT Fee 

tier, which had a quarterly fee of 

$101,004. With the imposition of the 

proposed tier changes and the discount, 

Broker-Dealer Firm ABC, an options 

market maker, would be ranked in Tier 

3 and would owe a quarterly fee of 

$40,899. 

In developing the proposed market 

maker discounts, the Operating 

Committee considered various 

discounts for Options Market Makers 

and equity market makers, including 

discounts of 50%, 25%, 0.00002%, as 

well as the 5.43% for option market 

makers and 0.01% for equity market 

makers. Each of these options were 

considered in the context of the full 

model, as changes in each variable in 

the model affect other variables in the 

model when allocating the total CAT 

costs among CAT Reporters. The 

Operating Committee determined to 

adopt the proposed discount because it 

directly relates to the concern regarding 

the quoting requirement, is an objective 

discounting method, and has the 

desired potential to shift market makers 

to lower fee tiers. 

By imposing a discount on Options 

Market Makers and equities market 

makers’ quoting traffic for the 

calculation of message traffic, the 

Operating Committee believes that the 

proposed fees for market makers would 

not impose an undue or inappropriate 

burden on competition under Section 6 

or Section 15A of the Exchange Act. 

Moreover, the Operating Committee 

believes that the proposed fees 

appropriately take into account the 

distinctions in the securities trading 

operations of different Industry 

Members, and avoid disincentives, such 

as a reduction in market quality, as 

required under the funding principles of 

the CAT NMS Plan.52 The proposed 

discounts recognize the different types 

of trading operations presented by 

Options Market Makers and equities 

market makers, as well as the value of 

the market makers’ quoting activity to 

the market as a whole. Accordingly, the 

Operating Committee believes that the 

proposed discounts will not impact the 

ability of small Options Market Makers 

or equities market makers to provide 

liquidity. 

(C) Comparability/Allocation of Costs 

Under the Original Proposal, 75% of 

CAT costs were allocated to Industry 

Members (other than Execution Venue 

ATSs) and 25% of CAT costs were 

allocated to Execution Venues. This cost 

allocation sought to maintain the 

greatest level of comparability across the 

funding model, where comparability 

considered affiliations among or 

between CAT Reporters. The 

Commission and commenters expressed 

concerns regarding whether the 

proposed 75%/25% allocation of CAT 

costs is consistent with the Plan’s 

funding principles and the Exchange 

Act, including whether the allocation 

places a burden on competition or 

reduces market quality. The 

Commission and commenters also 

questioned whether the approach of 

accounting for affiliations among CAT 

Reporters in setting CAT Fees 

disadvantages non-affiliated CAT 

Reporters or otherwise burdens 

competition in the market for trading 

services.53

In response to these concerns, the 

Operating Committee determined to 

revise the proposed funding model to 

focus the comparability of CAT Fees on 

the individual entity level, rather than 

primarily on the comparability of 

affiliated entities. In light of the 

interconnected nature of the various 

aspects of the funding model, the 

Operating Committee determined to 

revise various aspects of the model to 

enhance comparability at the individual 

entity level. Specifically, to achieve 

such comparability, the Operating 

Committee determined to (1) decrease 

the number of tiers for Industry 

Members (other than Execution Venue 

ATSs) from nine to seven; (2) change the 

allocation of CAT costs between Equity 

Execution Venues and Options 

Execution Venues from 75%/25% to 

67%/33%; and (3) adjust tier 

percentages and recovery allocations for 

Equity Execution Venues, Options 

Execution Venues and Industry 

Members (other than Execution Venue 

ATSs). With these changes, the 

proposed funding model provides fee 

comparability for the largest individual 

entities, with the largest Industry 

Members (other than Execution Venue 

ATSs), Equity Execution Venues and 

Options Execution Venues each paying 

a CAT Fee of approximately $81,000 

each quarter. 

(i) Number of Industry Member Tiers 

In the Original Proposal, the proposed 

funding model had nine tiers for 

Industry Members (other than Execution 

Venue ATSs). The Operating Committee 

determined that reducing the number of 

tiers from nine tiers to seven tiers (and 

adjusting the predefined Industry 

Member Percentages as well) continues 

to provide a fair allocation of fees 

among Industry Members and 

appropriately distinguishes between 

Industry Members with differing levels 

of message traffic. In reaching this 

conclusion, the Operating Committee 

considered historical message traffic 

generated by Industry Members across 

all exchanges and as submitted to 

FINRA’s OATS, and considered the 

distribution of firms with similar levels 

of message traffic, grouping together 

firms with similar levels of message 

traffic. Based on this, the Operating 

Committee determined that seven tiers 

would group firms with similar levels of 


srobinson on DSK9F5VC42PROD with NOTICES
1420 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 

54Securities Exchange Act Rel. No. 67457 (Jul 18, 

2012), 77 FR 45722, 45726 (Aug. 1, 2012) (‘‘Rule 

613 Adopting Release’’). 

message traffic, while also achieving 

greater comparability in the model for 

the individual CAT Reporters with the 

greatest market share or message traffic. 

In developing the proposed seven tier 

structure, the Operating Committee 

considered remaining at nine tiers, as 

well as reducing the number of tiers 

down to seven when considering how to 

address the concerns raised regarding 

comparability. For each of the 

alternatives, the Operating Committee 

considered the assignment of various 

percentages of Industry Members to 

each tier as well as various percentages 

of Industry Member recovery allocations 

for each alternative. Each of these 

options was considered in the context of 

its effects on the full funding model, as 

changes in each variable in the model 

affect other variables in the model when 

allocating the total CAT costs among 

CAT Reporters. The Operating 

Committee determined that the seven 

tier alternative provided the most fee 

comparability at the individual entity 

level for the largest CAT Reporters, 

while both providing logical breaks in 

tiering for Industry Members with 

different levels of message traffic and a 

sufficient number of tiers to provide for 

the full spectrum of different levels of 

message traffic for all Industry 

Members. 

(ii) Allocation of CAT Costs Between 

Equity and Options Execution Venues 

The Operating Committee also 

determined to adjust the allocation of 

CAT costs between Equity Execution 

Venues and Options Execution Venues 

to enhance comparability at the 

individual entity level. In the Original 

Proposal, 75% of Execution Venue CAT 

costs were allocated to Equity Execution 

Venues, and 25% of Execution Venue 

CAT costs were allocated to Options 

Execution Venues. To achieve the goal 

of increased comparability at the 

individual entity level, the Operating 

Committee analyzed a range of 

alternative splits for revenue recovery 

between Equity and Options Execution 

Venues, along with other changes in the 

proposed funding model. Based on this 

analysis, the Operating Committee 

determined to allocate 67 percent of 

Execution Venue costs recovered to 

Equity Execution Venues and 33 percent 

to Options Execution Venues. The 

Operating Committee determined that a 

67/33 allocation between Equity and 

Options Execution Venues enhances the 

level of fee comparability for the largest 

CAT Reporters. Specifically, the largest 

Equity and Options Execution Venues 

would pay a quarterly CAT Fee of 

approximately $81,000. 

In developing the proposed allocation 

of CAT costs between Equity and 

Options Execution Venues, the 

Operating Committee considered 

various different options for such 

allocation, including keeping the 

original 75%/25% allocation, as well as 

shifting to a 70%/30%, 67%/33%, or 

57.75%/42.25% allocation. For each of 

the alternatives, the Operating 

Committee considered the effect each 

allocation would have on the 

assignment of various percentages of 

Equity Execution Venues to each tier as 

well as various percentages of Equity 

Execution Venue recovery allocations 

for each alternative. Moreover, each of 

these options was considered in the 

context of the full model, as changes in 

each variable in the model affect other 

variables in the model when allocating 

the total CAT costs among CAT 

Reporters. The Operating Committee 

determined that the 67%/33% 

allocation between Equity and Options 

Execution Venues provided the greatest 

level of fee comparability at the 

individual entity level for the largest 

CAT Reporters, while still providing for 

appropriate fee levels across all tiers for 

all CAT Reporters. 

(iii) Allocation of Costs Between 

Execution Venues and Industry 

Members 

The Operating Committee determined 

to allocate 25% of CAT costs to 

Execution Venues and 75% to Industry 

Members (other than Execution Venue 

ATSs), as it had in the Original 

Proposal. The Operating Committee 

determined that this 75%/25% 

allocation, along with the other changes 

proposed above, led to the most 

comparable fees for the largest Equity 

Execution Venues, Options Execution 

Venues and Industry Members (other 

than Execution Venue ATSs). The 

largest Equity Execution Venues, 

Options Execution Venues and Industry 

Members (other than Execution Venue 

ATSs) would each pay a quarterly CAT 

Fee of approximately $81,000. 

As a preliminary matter, the 

Operating Committee determined that it 

is appropriate to allocate most of the 

costs to create, implement and maintain 

the CAT to Industry Members for 

several reasons. First, there are many 

more broker-dealers expected to report 

to the CAT than Participants (i.e., 1,541 

broker-dealer CAT Reporters versus 22 

Participants). Second, since most of the 

costs to process CAT reportable data is 

generated by Industry Members, 

Industry Members could be expected to 

contribute toward such costs. Finally, as 

noted by the SEC, the CAT 

‘‘substantially enhance[s] the ability of 

the SROs and the Commission to 

oversee today’s securities markets,’’ 54

thereby benefitting all market 

participants. After making this 

determination, the Operating Committee 

analyzed several different cost 

allocations, as discussed further below, 

and determined that an allocation where 

75% of the CAT costs should be borne 

by the Industry Members (other than 

Execution Venue ATSs) and 25% 

should be paid by Execution Venues 

was most appropriate and led to the 

greatest comparability of CAT Fees for 

the largest CAT Reporters. 

In developing the proposed allocation 

of CAT costs between Execution Venues 

and Industry Members (other than 

Execution Venue ATSs), the Operating 

Committee considered various different 

options for such allocation, including 

keeping the original 75%/25% 

allocation, as well as shifting to an 80%/ 

20%, 70%/30%, or 65%/35% 

allocation. Each of these options was 

considered in the context of the full 

model, including the effect on each of 

the changes discussed above, as changes 

in each variable in the model affect 

other variables in the model when 

allocating the total CAT costs among 

CAT Reporters. In particular, for each of 

the alternatives, the Operating 

Committee considered the effect each 

allocation had on the assignment of 

various percentages of Equity Execution 

Venues, Options Execution Venues and 

Industry Members (other than Execution 

Venue ATSs) to each relevant tier as 

well as various percentages of recovery 

allocations for each tier. The Operating 

Committee determined that the 75%/ 

25% allocation between Execution 

Venues and Industry Members (other 

than Execution Venue ATSs) provided 

the greatest level of fee comparability at 

the individual entity level for the largest 

CAT Reporters, while still providing for 

appropriate fee levels across all tiers for 

all CAT Reporters. 

(iv) Affiliations 

The funding principles set forth in 

Section 11.2 of the Plan require that the 

fees charged to CAT Reporters with the 

most CAT-related activity (measured by 

market share and/or message traffic, as 

applicable) are generally comparable 

(where, for these comparability 

purposes, the tiered fee structure takes 

into consideration affiliations between 

or among CAT Reporters, whether 

Execution Venue and/or Industry 

Members). The proposed funding model 

satisfies this requirement. As discussed 


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55Abrogation Order at 35011; FIA Principal 

Traders Group Letter at 2. 

56The Participants note that this analysis did not 

place MIAX PEARL in Tier 1 or Tier 2 since the 

exchange commenced trading on February 6, 2017. 

above, under the proposed funding 

model, the largest Equity Execution 

Venues, Options Execution Venues, and 

Industry Members (other than Execution 

Venue ATSs) pay approximately the 

same fee. Moreover, the Operating 

Committee believes that the proposed 

funding model takes into consideration 

affiliations between or among CAT 

Reporters as complexes with multiple 

CAT Reporters will pay the appropriate 

fee based on the proposed fee schedule 

for each of the CAT Reporters in the 

complex. For example, a complex with 

a Tier 1 Equity Execution Venue and 

Tier 2 Industry Member will a pay the 

same as another complex with a Tier 1 

Equity Execution Venue and Tier 2 

Industry Member. 

(v) Fee Schedule Changes 

Accordingly, Amendment No. 4 

amends paragraphs (a)(1) and (2) of the 

proposed fee schedule as set forth in the 

Original Proposal to reflect the changes 

discussed in this section. Specifically, 

the Operating Committee proposes to 

amend paragraph (a)(1) and (2) of the 

proposed fee schedule to update the 

number of tiers, and the fees and 

percentages assigned to each tier to 

reflect the described changes. 

(D) Market Share/Message Traffic 

In the Original Proposal, the 

Operating Committee proposed to 

charge Execution Venues based on 

market share and Industry Members 

(other than Execution Venue ATSs) 

based on message traffic. Commenters 

questioned the use of the two different 

metrics for calculating CAT Fees.55 The 

Operating Committee continues to 

believe that the proposed use of market 

share and message traffic satisfies the 

requirements of the Exchange Act and 

the funding principles set forth in the 

CAT NMS Plan. Accordingly, the 

proposed funding model continues to 

charge Execution Venues based on 

market share and Industry Members 

(other than Execution Venue ATSs) 

based on message traffic. 

In drafting the Plan and the Original 

Proposal, the Operating Committee 

expressed the view that the correlation 

between message traffic and size does 

not apply to Execution Venues, which 

they described as producing similar 

amounts of message traffic regardless of 

size. The Operating Committee believed 

that charging Execution Venues based 

on message traffic would result in both 

large and small Execution Venues 

paying comparable fees, which would 

be inequitable, so the Operating 

Committee determined that it would be 

more appropriate to treat Execution 

Venues differently from Industry 

Members in the funding model. Upon a 

more detailed analysis of available data, 

however, the Operating Committee 

noted that Execution Venues have 

varying levels of message traffic. 

Nevertheless, the Operating Committee 

continues to believe that a bifurcated 

funding model—where Industry 

Members (other than Execution Venue 

ATSs) are charged fees based on 

message traffic and Execution Venues 

are charged based on market share— 

complies with the Plan and meets the 

standards of the Exchange Act for the 

reasons set forth below. 

Charging Industry Members based on 

message traffic is the most equitable 

means for establishing fees for Industry 

Members (other than Execution Venue 

ATSs). This approach will assess fees to 

Industry Members that create larger 

volumes of message traffic that are 

relatively higher than those fees charged 

to Industry Members that create smaller 

volumes of message traffic. Since 

message traffic, along with fixed costs of 

the Plan Processor, is a key component 

of the costs of operating the CAT, 

message traffic is an appropriate 

criterion for placing Industry Members 

in a particular fee tier. 

The Operating Committee also 

believes that it is appropriate to charge 

Execution Venues CAT Fees based on 

their market share. In contrast to 

Industry Members (other than Execution 

Venue ATSs), which determine the 

degree to which they produce the 

message traffic that constitutes CAT 

Reportable Events, the CAT Reportable 

Events of Execution Venues are largely 

derivative of quotations and orders 

received from Industry Members that 

the Execution Venues are required to 

display. The business model for 

Execution Venues, however, is focused 

on executions in their markets. As a 

result, the Operating Committee 

believes that it is more equitable to 

charge Execution Venues based on their 

market share rather than their message 

traffic. 

Similarly, focusing on message traffic 

would make it more difficult to draw 

distinctions between large and small 

exchanges, including options exchanges 

in particular. For instance, the 

Operating Committee analyzed the 

message traffic of Execution Venues and 

Industry Members for the period of 

April 2017 to June 2017 and placed all 

CAT Reporters into a nine-tier 

framework (i.e., a single tier may 

include both Execution Venues and 

Industry Members). The Operating 

Committee’s analysis found that the 

majority of exchanges (15 total) were 

grouped in Tiers 1 and 2. Moreover, 

virtually all of the options exchanges 

were in Tiers 1 and 2.56 Given the 

concentration of options exchanges in 

Tiers 1 and 2, the Operating Committee 

believes that using a funding model 

based purely on message traffic would 

make it more difficult to distinguish 

between large and small options 

exchanges, as compared to the proposed 

bifurcated fee approach. 

In addition, the Operating Committee 

also believes that it is appropriate to 

treat ATSs as Execution Venues under 

the proposed funding model since ATSs 

have business models that are similar to 

those of exchanges, and ATSs also 

compete with exchanges. For these 

reasons, the Operating Committee 

believes that charging Execution Venues 

based on market share is more 

appropriate and equitable than charging 

Execution Venues based on message 

traffic. 

(E) Time Limit 

In the Original Proposal, the 

Operating Committee did not impose 

any time limit on the application of the 

proposed CAT Fees. As discussed 

above, the Operating Committee 

developed the proposed funding model 

by analyzing currently available 

historical data. Such historical data, 

however, is not as comprehensive as 

data that will be submitted to the CAT. 

Accordingly, the Operating Committee 

believes that it will be appropriate to 

revisit the funding model once CAT 

Reporters have actual experience with 

the funding model. Accordingly, the 

Operating Committee proposes to 

include a sunsetting provision in the 

proposed fee model. The proposed CAT 

Fees will sunset two years after the 

operative date for the CAT Fees. Such 

a provision will provide the Operating 

Committee and other market 

participants with the opportunity to 

reevaluate the performance of the 

proposed funding model. 

(F) Tier Structure/Decreasing Cost per 

Unit 

In the Original Proposal, the 

Operating Committee determined to use 

a tiered fee structure. The Commission 

and commenters questioned whether 

the decreasing cost per additional unit 

(of message traffic in the case of 

Industry Members, or of share volume 

in the case of Execution Venues) in the 

proposed fee schedules burdens 

competition by disadvantaging small 


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57Suspension Order at 31667. 

58See FIA Principal Traders Group Letter at 2; 

Belvedere Letter at 4[sic]. 

59See Abrogation Order at 35010; MFA Letter at 

1–2. 

60Letter from Participants to Brent J. Fields, 

Secretary, SEC (Sept. 23, 2016) (‘‘Plan Response 

Letter’’); Letter from CAT NMS Plan Participants to 

Brent J. Fields, Secretary, SEC (June 29, 2017) (‘‘Fee 

Rule Response Letter’’). 

61Fee Rule Response Letter at 2; Plan Response 

Letter at 18. 

62See Abrogation Order at 35010; FIA Principal 

Traders Group at 3. 

63See Plan Response Letter at 16, 17; Fee Rule 

Response Letter at 10–12. 

64See FIA Principal Traders Group at 3; SIFMA 

Letter at 3. 

65See Abrogation Order at 35009–10; SIFMA 

Letter at 2. 

66See Plan Response Letter at 9–10; Fee Rule 

Response Letter at 3–4. 

67Rule 613 Adopting Release at 45726. 

Industry Members and Execution 

Venues and/or by creating barriers to 

entry in the market for trading services 

and/or the market for broker-dealer 

services.57

The Operating Committee does not 

believe that decreasing cost per 

additional unit in the proposed fee 

schedules places an unfair competitive 

burden on Small Industry Members and 

Execution Venues. While the cost per 

unit of message traffic or share volume 

necessarily will decrease as volume 

increases in any tiered fee model using 

fixed fee percentages and, as a result, 

Small Industry Members and small 

Execution Venues may pay a larger fee 

per message or share, this comment fails 

to take account of the substantial 

differences in the absolute fees paid by 

Small Industry Members and small 

Execution Venues as opposed to large 

Industry Members and large Execution 

Venues. For example, under the fee 

proposals, Tier 7 Industry Members 

would pay a quarterly fee of $105, while 

Tier 1 Industry Members would pay a 

quarterly fee of $81,483. Similarly, a 

Tier 4 Equity Execution Venue would 

pay a quarterly fee of $129, while a Tier 

1 Equity Execution Venue would pay a 

quarterly fee of $81,048. Thus, Small 

Industry Members and small Execution 

Venues are not disadvantaged in terms 

of the total fees that they actually pay. 

In contrast to a tiered model using fixed 

fee percentages, the Operating 

Committee believes that strictly variable 

or metered funding models based on 

message traffic or share volume would 

be more likely to affect market behavior 

and may present administrative 

challenges (e.g., the costs to calculate 

and monitor fees may exceed the fees 

charged to the smallest CAT Reporters). 

(G) Other Alternatives Considered 

In addition to the various funding 

model alternatives discussed above 

regarding discounts, number of tiers and 

allocation percentages, the Operating 

Committee also discussed other possible 

funding models. For example, the 

Operating Committee considered 

allocating the total CAT costs equally 

among each of the Participants, and 

then permitting each Participant to 

charge its own members as it deems 

appropriate.58 The Operating Committee 

determined that such an approach 

raised a variety of issues, including the 

likely inconsistency of the ensuing 

charges, potential for lack of 

transparency, and the impracticality of 

multiple SROs submitting invoices for 

CAT charges. The Operating Committee 

therefore determined that the proposed 

funding model was preferable to this 

alternative. 

(H) Industry Member Input 

Commenters expressed concern 

regarding the level of Industry Member 

input into the development of the 

proposed funding model, and certain 

commenters have recommended a 

greater role in the governance of the 

CAT.59 The Participants previously 

addressed this concern in its letters 

responding to comments on the Plan 

and the CAT Fees.60 As discussed in 

those letters, the Participants discussed 

the funding model with the 

Development Advisory Group (‘‘DAG’’), 

the advisory group formed to assist in 

the development of the Plan, during its 

original development.61 Moreover, 

Industry Members currently have a 

voice in the affairs of the Operating 

Committee and operation of the CAT 

generally through the Advisory 

Committee established pursuant to Rule 

613(b)(7) and Section 4.13 of the Plan. 

The Advisory Committee attends all 

meetings of the Operating Committee, as 

well as meetings of various 

subcommittees and working groups, and 

provides valuable and critical input for 

the Participants’ and Operating 

Committee’s consideration. The 

Operating Committee continues to 

believe that that Industry Members have 

an appropriate voice regarding the 

funding of the Company. 

(I) Conflicts of Interest 

Commenters also raised concerns 

regarding Participant conflicts of 

interest in setting the CAT Fees.62 The 

Participants previously responded to 

this concern in both the Plan Response 

Letter and the Fee Rule Response 

Letter.63 As discussed in those letters, 

the Plan, as approved by the SEC, 

adopts various measures to protect 

against the potential conflicts issues 

raised by the Participants’ fee-setting 

authority. Such measures include the 

operation of the Company as a not for 

profit business league and on a breakeven basis, and the requirement that the 

Participants file all CAT Fees under 

Section 19(b) of the Exchange Act. The 

Operating Committee continues to 

believe that these measures adequately 

protect against concerns regarding 

conflicts of interest in setting fees, and 

that additional measures, such as an 

independent third party to evaluate an 

appropriate CAT Fee, are unnecessary. 

(J) Fee Transparency 

Commenters also argued that they 

could not adequately assess whether the 

CAT Fees were fair and equitable 

because the Operating Committee has 

not provided details as to what the 

Participants are receiving in return for 

the CAT Fees.64 The Operating 

Committee provided a detailed 

discussion of the proposed funding 

model in the Plan, including the 

expenses to be covered by the CAT Fees. 

In addition, the agreement between the 

Company and the Plan Processor sets 

forth a comprehensive set of services to 

be provided to the Company with regard 

to the CAT. Such services include, 

without limitation: User support 

services (e.g., a help desk); tools to 

allow each CAT Reporter to monitor and 

correct their submissions; a 

comprehensive compliance program to 

monitor CAT Reporters’ adherence to 

Rule 613; publication of detailed 

Technical Specifications for Industry 

Members and Participants; performing 

data linkage functions; creating 

comprehensive data security and 

confidentiality safeguards; creating 

query functionality for regulatory users 

(i.e., the Participants, and the SEC and 

SEC staff); and performing billing and 

collection functions. The Operating 

Committee further notes that the 

services provided by the Plan Processor 

and the costs related thereto were 

subject to a bidding process. 

(K) Funding Authority 

Commenters also questioned the 

authority of the Operating Committee to 

impose CAT Fees on Industry 

Members.65 The Participants previously 

responded to this same comment in the 

Plan Response Letter and the Fee Rule 

Response Letter.66 As the Participants 

previously noted, SEC Rule 613 

specifically contemplates broker-dealers 

contributing to the funding of the CAT. 

In addition, as noted by the SEC, the 

CAT ‘‘substantially enhance[s] the 

ability of the SROs and the Commission 

to oversee today’s securities markets,’’ 67


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68 17 CFR 242.608(b)(3)(i). 

69See Securities Exchange Act Rel. No. 81500 

(Aug. 30, 2017), 82 FR 42143 (Sept. 6, 2017). 

thereby benefitting all market 

participants. Therefore, the Operating 

Committing continues to believe that it 

is equitable for both Participants and 

Industry Members to contribute to 

funding the cost of the CAT. 

B. Governing or Constituent Documents 

Not applicable. 

C. Implementation of Amendment 

The terms of the proposed 

amendment will become effective upon 

filing pursuant to Rule 608(b)(3)(i) of the 

Exchange Act because it establishes a 

fee or other charge collected on behalf 

of all of the Participants in connection 

with access to, or use of, any facility 

contemplated by the plan (including 

changes in any provision with respect to 

distribution of any net proceeds from 

such fees or other charges to the 

sponsors and/or participants).68 At any 

time within sixty days of the filing of 

this amendment, the Commission may 

summarily abrogate the amendment and 

require that it be refiled pursuant to 

paragraph (b)(1) [sic] of Rule 608, if it 

appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors or the maintenance of fair and 

orderly markets, to remove impediments 

to, and perfect the mechanisms of, a 

national market system or otherwise in 

furtherance of the purposes of the 

Exchange Act. 

D. Development and Implementation 

Phases 

Not applicable. 

E. Analysis of Impact on Competition 

The Operating Committee does not 

believe that the proposed amendment 

will result in any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act. The 

Operating Committee notes that the 

proposed amendment implements 

provisions of the CAT NMS Plan 

approved by the Commission, and is 

designed to assist the Participants in 

meeting their regulatory obligations 

pursuant to the Plan. Because all 

national securities exchanges and 

FINRA are subject to the proposed CAT 

Fees set forth in the proposed 

amendment, this is not a competitive 

filing that raises competition issues 

between and among the exchanges and 

FINRA. 

Moreover, as previously described, 

the Operating Committee believes that 

the proposed fee schedule fairly and 

equitably allocates costs among CAT 

Reporters. In particular, the proposed 

fee schedule is structured to impose 

comparable fees on similarly situated 

CAT Reporters, and lessen the impact 

on smaller CAT Reporters. CAT 

Reporters with similar levels of CAT 

activity will pay similar fees. For 

example, Industry Members (other than 

Execution Venue ATSs) with higher 

levels of message traffic will pay higher 

fees, and those with lower levels of 

message traffic will pay lower fees. 

Similarly, Execution Venue ATSs and 

other Execution Venues with larger 

market share will pay higher fees, and 

those with lower levels of market share 

will pay lower fees. Therefore, given 

that there is generally a relationship 

between message traffic and/or market 

share to the CAT Reporter’s size, smaller 

CAT Reporters generally pay less than 

larger CAT Reporters. Accordingly, the 

Operating Committee does not believe 

that the CAT Fees would have a 

disproportionate effect on smaller or 

larger CAT Reporters. In addition, ATSs 

and exchanges will pay the same fees 

based on market share. Therefore, the 

Operating Committee does not believe 

that the fees will impose any burden on 

the competition between ATSs and 

exchanges. Accordingly, the Operating 

Committee believes that the proposed 

fees will minimize the potential for 

adverse effects on competition between 

CAT Reporters in the market. 

Furthermore, the tiered, fixed fee 

funding model limits the disincentives 

to providing liquidity to the market. 

Therefore, the proposed fees are 

structured to limit burdens on 

competitive quoting and other liquidity 

provision in the market. 

In addition, the Operating Committee 

believes that the proposed changes to 

the Original Proposal, as discussed 

above in detail, address certain 

competitive concerns raised by 

commenters, including concerns related 

to, among other things, smaller ATSs, 

ATSs trading OTC Equity Securities, 

market making quoting and fee 

comparability. As discussed above, the 

Operating Committee believes that the 

proposals address the competitive 

concerns raised by commenters. 

F. Written Understanding or 

Agreements Relating to Interpretation 

of, or Participation in, Plan. 

Not applicable. 

G. Approval by Plan Sponsors in 

Accordance With Plan 

Section 12.3 of the Plan states that, 

subject to certain exceptions, the Plan 

may be amended from time to time only 

by a written amendment, authorized by 

the affirmative vote of not less than twothirds of all of the Participants, that has 

been approved by the SEC pursuant to 

Rule 608 or has otherwise become 

effective under Rule 608. In addition, 

Section 4.3(a)(vi) of the Plan requires 

the Operating Committee, by Majority 

Vote, to authorize action to determine 

the appropriate funding-related policies, 

procedures and practices-consistent 

with Article XI. The Operating 

Committee has satisfied both of these 

requirements. 

H. Description of Operation of Facility 

Contemplated by the Proposed 

Amendment 

Not applicable. 

I. Terms and Conditions of Access 

Not applicable. 

J. Method of Determination and 

Imposition, and Amount of, Fees and 

Charges 

Section A of this letter describes in 

detail how the Operating Committee 

developed the proposed CAT Fees, 

including a detailed discussion of the 

proposed funding model for the CAT. 

K. Method and Frequency of Processor 

Evaluation 

Not applicable. 

L. Dispute Resolution 

Section 11.5 of the CAT NMS Plan 

addresses the resolution of disputes 

regarding Participants’ CAT Fees 

charged to Participants and Industry 

Members. Specifically, Section 11.5 

states that disputes with respect to fees 

the Company charges Participants 

pursuant to Article XI of the CAT NMS 

Plan shall be determined by the 

Operating Committee or a 

Subcommittee designated by the 

Operating Committee. Decisions by the 

Operating Committee or such 

designated Subcommittee on such 

matters shall be binding on Participants, 

without prejudice to the rights of any 

Participant to seek redress from the SEC 

pursuant to Rule 608 or in any other 

appropriate forum. In addition, the 

Participants adopted rules to establish 

the procedures for resolving potential 

disputes related to CAT Fees charged to 

Industry Members.69

III. 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. In 

particular, the Commission seeks 

comment on the following: 


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70Section 11.2(e) of the CAT NMS Plan. 

71Section 11.1(c) of the CAT NMS Plan. 

72The Notice for the CAT NMS Plan did not 

provide a comprehensive count of audit trail 

message traffic from different regulatory data 

sources, but the Commission did estimate the ratio 

of all SRO audit trail messages to OATS audit trail 

messages to be 1.9431. See Securities Exchange Act 

Release No. 77724 (April 27, 2016), 81 FR 30613, 

30721 n.919 and accompanying text (May 17, 2016). 

73Section 11.2(c) of the CAT NMS Plan. 

74Section 11.2(e) of the CAT NMS Plan. 

75Section 11.1(c) of the CAT NMS Plan. 

Allocation of Costs 

(1) Commenters’ views as to whether 

the allocation of CAT costs is consistent 

with the funding principle expressed in 

the CAT NMS Plan that requires the 

Operating Committee to ‘‘avoid any 

disincentives such as placing an 

inappropriate burden on competition 

and a reduction in market quality.’’ 70

(2) Commenters’ views as to whether 

the allocation of 25% of CAT costs to 

the Execution Venues (including all the 

Participants) and 75% to Industry 

Members, will incentivize or 

disincentivize the Participants to 

effectively and efficiently manage the 

CAT costs incurred by the Participants 

since they will only bear 25% of such 

costs. 

(3) Commenters’ views on the 

determination to allocate 75% of all 

costs incurred by the Participants from 

November 21, 2016 to November 21, 

2017 to Industry Members (other than 

Execution Venue ATSs), when such 

costs are development and build costs 

and when Industry Member reporting is 

scheduled to commence a year later, 

including views on whether such ‘‘fees, 

costs and expenses . . . [are] fairly and 

reasonably shared among the 

Participants and Industry Members’’ in 

accordance with the CAT NMS Plan.71

(4) Commenters’ views on whether an 

analysis of the ratio of the expected 

Industry Member-reported CAT 

messages to the expected SRO-reported 

CAT messages should be the basis for 

determining the allocation of costs 

between Industry Members and 

Execution Venues.72

(5) Any additional data analysis on 

the allocation of CAT costs, including 

any existing supporting evidence. 

Comparability 

(6) Commenters’ views on the shift in 

the standard used to assess the 

comparability of CAT Fees, with the 

emphasis now on comparability of 

individual entities instead of affiliated 

entities, including views as to whether 

this shift is consistent with the funding 

principle expressed in the CAT NMS 

Plan that requires the Operating 

Committee to establish a fee structure in 

which the fees charged to ‘‘CAT 

Reporters with the most CAT-related 

activity (measured by market share and/ 

or message traffic, as applicable) are 

generally comparable (where, for these 

comparability purposes, the tiered fee 

structure takes into consideration 

affiliations between or among CAT 

Reporters, whether Execution Venues 

and/or Industry Members).’’ 73

(7) Commenters’ views as to whether 

the reduction in the number of tiers for 

Industry Members (other than Execution 

Venue ATSs) from nine to seven, the 

revised allocation of CAT costs between 

Equity Execution Venues and Options 

Execution Venues from a 75%/25% 

split to a 67%/33% split, and the 

adjustment of all tier percentages and 

recovery allocations achieves 

comparability across individual entities, 

and whether these changes should have 

resulted in a change to the allocation of 

75% of total CAT costs to Industry 

Members (other than Execution Venue 

ATSs) and 25% of such costs to 

Execution Venues. 

Discounts 

(8) Commenters’ views as to whether 

the discounts for options marketmakers, equities market-makers, and 

Equity ATSs trading OTC Equity 

Securities are clear, reasonable, and 

consistent with the funding principle 

expressed in the CAT NMS Plan that 

requires the Operating Committee to 

‘‘avoid any disincentives such as 

placing an inappropriate burden on 

competition and a reduction in market 

quality,’’ 74 including views as to 

whether the discounts for marketmakers limit any potential disincentives 

to act as a market-maker and/or to 

provide liquidity due to CAT fees. 

Calculation of Costs and Imposition of 

CAT Fees 

(9) Commenters’ views as to whether 

the amendment provides sufficient 

information regarding the amount of 

costs incurred from November 21, 2016 

to November 21, 2017, particularly, how 

those costs were calculated, how those 

costs relate to the proposed CAT Fees, 

and how costs incurred after November 

21, 2017 will be assessed upon Industry 

Members and Execution Venues; 

(10) Commenters’ views as to whether 

the timing of the imposition and 

collection of CAT Fees on Execution 

Venues and Industry Members is 

reasonably related to the timing of when 

the Company expects to incur such 

development and implementation 

costs.75

(11) Commenters’ views on dividing 

CAT costs equally among each of the 

Participants, and then each Participant 

charging its own members as it deems 

appropriate, taking into consideration 

the possibility of inconsistency in 

charges, the potential for lack of 

transparency, and the impracticality of 

multiple SROs submitting invoices for 

CAT charges. 

Burden on Competition and Barriers to 

Entry 

(12) Commenters’ views as to whether 

the allocation of 75% of CAT costs to 

Industry Members (other than Execution 

Venue ATSs) imposes any burdens on 

competition to Industry Members, 

including views on what baseline 

competitive landscape the Commission 

should consider when analyzing the 

proposed allocation of CAT costs. 

(13) Commenters’ views on the 

burdens on competition, including the 

relevant markets and services and the 

impact of such burdens on the baseline 

competitive landscape in those relevant 

markets and services. 

(14) Commenters’ views on any 

potential burdens imposed by the fees 

on competition between and among 

CAT Reporters, including views on 

which baseline markets and services the 

fees could have competitive effects on 

and whether the fees are designed to 

minimize such effects. 

(15) Commenters’ general views on 

the impact of the proposed fees on 

economies of scale and barriers to entry. 

(16) Commenters’ views on the 

baseline economies of scale and barriers 

to entry for Industry Members and 

Execution Venues and the relevant 

markets and services over which these 

economies of scale and barriers to entry 

exist. 

(17) Commenters’ views as to whether 

a tiered fee structure necessarily results 

in less active tiers paying more per unit 

than those in more active tiers, thus 

creating economies of scale, with 

supporting information if possible. 

(18) Commenters’ views as to how the 

level of the fees for the least active tiers 

would or would not affect barriers to 

entry. 

(19) Commenters’ views on whether 

the difference between the cost per unit 

(messages or market share) in less active 

tiers compared to the cost per unit in 

more active tiers creates regulatory 

economies of scale that favor larger 

competitors and, if so: 

(a) How those economies of scale 

compare to operational economies of 

scale; and 

(b) Whether those economies of scale 

reduce or increase the current 

advantages enjoyed by larger 

competitors or otherwise alter the 

competitive landscape. 


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(20) Commenters’ views on whether 

the fees could affect competition 

between and among national securities 

exchanges and FINRA, in light of the 

fact that implementation of the fees does 

not require the unanimous consent of all 

such entities, and, specifically: 

(a) Whether any of the national 

securities exchanges or FINRA are 

disadvantaged by the fees; and 

(b) If so, whether any such 

disadvantages would be of a magnitude 

that would alter the competitive 

landscape. 

(21) Commenters’ views on any 

potential burden imposed by the fees on 

competitive quoting and other liquidity 

provision in the market, including, 

specifically: 

(a) Commenters’ views on the kinds of 

disincentives that discourage liquidity 

provision and/or disincentives that the 

Commission should consider in its 

analysis; 

(b) Commenters’ views as to whether 

the fees could disincentivize the 

provision of liquidity; and 

(c) Commenters’ views as to whether 

the fees limit any disincentives to 

provide liquidity. 

(22) Commenters’ views as to whether 

the amendment adequately responds to 

and/or addresses comments received on 

related filings. 

Comments may be submitted by any 

of the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number 4– 

698 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090. 

A. All submissions should refer to 

File Number 4–698.This file number 

should be included on the subject line 

if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed plan 

amendment that are filed with the 

Commission, and all written 

communications relating to the 

amendment between the Commission 

and any person, other than those that 

may be withheld from the public in 

accordance with the provisions of 5 

U.S.C. 552, will be available for website 

viewing and printing in the 

Commission’s Public Reference Room, 

100 F Street NE, Washington, DC 20549, 

on official business days between the 

hours of 10:00 a.m. and 3:00 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

the Participants’ offices. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number 4–698 and should be submitted 

on or before February 1, 2018. 

By the Commission. 

Eduardo A. Aleman, 

Assistant Secretary. 

BILLING CODE 8011–01–P 


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APPENDIX A 

[Additions underlined; deletions bracketed] 

EXHIBITB 

CAT FEES 

(a) Participant CAT Fee Schedule. 

(I) CAT Fees: Execution Venues for NMS Stocks and/or OTC Equity Securities. 

The CAT NMS, LLC will assign each Execution Venue for NMS Stocks and/or OTC 

Equity Securities to a fee tier once every quarter, where such tier assignment is calculated by 

ranking each such Execution Venue based on its total market share (with a discount for the OTC 

Equity Securities market share ofEquity Execution Venue ATSs trading OTC Equity Securities 

as well as the market share of the FINRA OTC reporting facility based on the average shares per 

trade ratio between NMS Stocks and OTC Equity Securities) for the three months prior to the 

quarterly tier calculation day and assigning each such Execution Venue to a tier based on that 

ranking and predefined percentages for such Execution Venues. The Execution Venues for NMS 

Stocks and/or OTC Equity Securities with the higher total quarterly market share will be ranked 

in Tier 1, and such Execution Venues with the lowest quarterly market share will be ranked in 

Tier 4. Each quarter, each Execution Venue for NMS Stocks and/or OTC Equity Securities shall 

pay in the manner prescribed by the CAT NMS, LLC the following CAT Fee corresponding to 

the tier assigned by the CAT NMS, LLC for such Execution Venue for that quarter: 

Percentage of Execution Venues 

for NMS Stocks and/or OTC Quarterly 

Tier Eouitv Securities CAT Fee 

1 25.00% $81,048 

2 42.00% $37,062 

3 23.00% $21,126 

4 10.00% $129 

(2) CAT Fees: Execution Venues for Listed Options 

The CAT NMS, LLC will assign each Execution Venue for Listed Options to a fee tier 

once every quarter, where such tier assignment is calculated by ranking each such Execution 

Venue based on its total market share for the three months prior to the quarterly tier calculation 

day and assigning each such Execution Venue to a tier based on that ranking and predefined 

percentages for such Execution Venues. The Execution Venues for Listed Options with the 

higher total quarterly market share will be ranked in Tier 1, and such Execution Venues with the 

lower quarterly market share will be ranked in Tier 2. Each quarter, each Execution Venue for 

Listed Options shall pay in the manner prescribed by the CAT NMS, LLC the following CAT 
Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 1427 

BILLING CODE 8011–01–C 

Appendix B 

EQUITY EXECUTION VENUE RANK AND TIER

Market participant 

Market share 

of share volume 76

(%) 

Rank Tier 

Financial Industry Regulatory Authority, Inc ........................................................................ 24.4118512850143 1 1 

The NASDAQ Stock Market LLC ........................................................................................ 14.3221316394514 2 1 

New York Stock Exchange LLC .......................................................................................... 13.1631222177691 3 1 

NYSE Arca, Inc .................................................................................................................... 9.3963074291365 4 1 

Cboe EDGX Exchange, Inc ................................................................................................. 6.3267638314653 5 1 

Cboe BZX Exchange, Inc .................................................................................................... 6.1478229789347 6 1 

Cboe BYX Exchange, Inc .................................................................................................... 4.7643781647716 7 1 

NASDAQ BX, Inc ................................................................................................................. 3.1401372815484 8 1 

UBS ATS ............................................................................................................................. 2.3058693548856 9 1 

Investors’ Exchange, LLC .................................................................................................... 2.1483648334229 10 1 

Cboe EDGA Exchange, Inc ................................................................................................. 1.8513467967001 11 1 

CROSSFINDER ................................................................................................................... 1.6894565311740 12 1 

SUPERX .............................................................................................................................. 1.0115687555972 13 1 

MS POOL (ATS–4) .............................................................................................................. 0.9188826526803 14 2 

NASDAQ PHLX LLC ........................................................................................................... 0.8009596014408 15 2 

J.P. MORGAN ATS (‘‘JPM–X’’) ........................................................................................... 0.7936361365369 16 2 

BARCLAYS ATS (‘‘LX’’) ...................................................................................................... 0.6719255553783 17 2 

LEVEL ATS .......................................................................................................................... 0.6571986459767 18 2 

INSTINCT X ......................................................................................................................... 0.5956036029620 19 2 

BIDS TRADING L.P ............................................................................................................. 0.5837401323782 20 2 

INSTINET CONTINUOUS BLOCK CROSSING SYSTEM (CBX) ...................................... 0.4723979596673 21 2 

KCG MATCHING ................................................................................................................. 0.4682553983691 22 2 

POSIT .................................................................................................................................. 0.4435281677014 23 2 

Chicago Stock Exchange, Inc ............................................................................................. 0.4241409043731 24 2 

SIGMA X .............................................................................................................................. 0.3157563290949 25 2 

MS TRAJECTORY CROSS (ATS–1) .................................................................................. 0.2654339378079 26 2 

NYSE American LLC ........................................................................................................... 0.2342627717196 27 2 

IBKR ATS ............................................................................................................................ 0.2038196304470 28 2 

CROSSSTREAM ................................................................................................................. 0.1772292674940 29 2 

SIGMA X2 ............................................................................................................................ 0.1705392273292 30 2 

LIQUIDNET ATS .................................................................................................................. 0.1499973113804 31 2 

MILLENNIUM ....................................................................................................................... 0.1365496066290 32 2 

CITICROSS ......................................................................................................................... 0.1349428742591 33 2 

LIQUIDNET H20 ATS .......................................................................................................... 0.1282036311445 34 2 

DEALERWEB, INC .............................................................................................................. 0.1156677493258 35 2 

OTC LINK ATS77 ................................................................................................................ 0.1148240026713 36 3 

BLOCKCROSS ATS ............................................................................................................ 0.0979883294279 37 3 

INSTINET CROSSING ........................................................................................................ 0.0763929064441 38 3 

CODA MARKETS, INC ........................................................................................................ 0.0662166896390 39 3 

LUMINEX TRADING & ANALYTICS LLC ........................................................................... 0.0304261486817 40 3 

MS RETAIL POOL ............................................................................................................... 0.0295389976553 41 3 

CITIBLOC ............................................................................................................................ 0.0251235534421 42 3 

USTOCKTRADE SECURITIES, INC ................................................................................... 0.0089509616229 43 3 

AQUA SECURITIES L.P ..................................................................................................... 0.0052275918715 44 3 

XE ........................................................................................................................................ 0.0031219820548 45 3 


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76Market share is based on Q2 2017 data made 

publicly available by Bats (exchange market 

statistics source), FINRA (ATS market statistics 

source), and OTC Markets (ATS market statistics 

source). 

77Market share for OTC Link ATS is based on the 

Q2 2017 data made publicly available by OTC 

Markets. 

78The market share is based on Q2 data made 

publicly available by Bats. 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See See Securities Exchange Act Release No. 

82116 (Nov. 17, 2017), 82 FR 55898. 

4 In Amendment No. 2, the Exchange: (1) 

Corrected the definition for Commodity-Based Trust 

Shares and supplemented its representations 

relating to the continued listing requirements 

applicable to the Units (as defined herein); (2) 

supplemented its description of the assets other 

than physical gold and silver bullion that may be 

held by the Trust; (3) provided specific information 

about the ratio of the value of net assets in gold 

bullion to the value of net assets in silver bullion 

to be held by the Trust; (4) provided updated 

information pertaining to the Arrangement (as 

defined herein); (5) supplemented its description of 

how the Trust’s net asset value (‘‘NAV’’) will be 

calculated; (6) provided information about gold and 

silver certificates; (7) supplemented its description 

of the U.S. futures exchanges and the Commodities 

Futures Trading Commission; (8) added a 

representation that the NAV will be calculated daily 

and made available to all market participants at the 

same time, and that the IIV (as defined herein) will 

be calculated at least every fifteen seconds and 

made available to all market participants at the 

same time; (9) specified that the Exchange may 

obtain information regarding trading in gold and 

silver futures from markets trading such futures that 

are members of ISG (as defined herein) or with 

which the Exchange has in place a CSSA (as 

defined herein), including COMEX (as defined 

herein); (10) specified and confirmed that the Units 

would trade in all of the Exchange’s trading 

sessions; (11) referenced additional language to be 

included in the Information Bulletin relating to the 

possibility that trading spreads and the resulting 

premium or discount on the Units (as defined 

herein) may widen as a result of reduced liquidity 

of gold or silver trading during the Core and Late 

Trading Sessions after the close of the major world 

gold and silver markets; and (12) made certain 

technical, Exchange rule reference, and other 

conforming corrections. Amendment No. 2 is 

available at: https://www.sec.gov/comments/srnysearca-2017-131/nysearca2017131-2873835- 

161766.pdf. 

EQUITY EXECUTION VENUE RANK AND TIER—Continued 

Market participant 

Market share 

of share volume 76

(%) 

Rank Tier 

GLOBAL OTC ...................................................................................................................... 0.0002467471213 46 3 

BARCLAYS DIRECTEX ...................................................................................................... 0.0001494994467 47 3 

VARIABLE INVESTMENT ADVISORS, INC. ATS (VIAATS) ............................................. 0.0000002922675 48 4 

FNC AG STOCK, LLC ......................................................................................................... 0.0000000607782 49 4 

DBOT ATS, LLC .................................................................................................................. 0.0000000429086 50 4 

PRO SECURITIES ATS ...................................................................................................... 0.0000000000004 51 4 

NYSE National, Inc .............................................................................................................. 0.0000000000000 52 4 

OPTIONS EXECUTION VENUE RANK AND TIER

Market participant 

Market share of 

share volume 

(options 

contracts) 78

(%) 

Rank Tier 

Cboe Exchange, Inc ............................................................................................................ 17.30 1 1 

NASDAQ PHLX LLC ........................................................................................................... 16.89 2 1 

Cboe BZX Options Exchange, Inc ...................................................................................... 12.36 3 1 

The NASDAQ Options Market LLC ..................................................................................... 10.01 4 1 

Nasdaq ISE, LLC ................................................................................................................. 9.06 5 1 

NYSE Arca, Inc .................................................................................................................... 7.74 6 1 

NYSE American LLC ........................................................................................................... 7.60 7 1 

Miami International Securities Exchange, LLC ................................................................... 5.07 8 1 

Nasdaq GEMX, LLC ............................................................................................................ 5.04 9 1 

Cboe C2 Exchange, Inc ...................................................................................................... 3.79 10 1 

BOX Options Exchange LLC ............................................................................................... 2.30 11 1 

Cboe EDGX Options Exchange, Inc ................................................................................... 1.40 12 2 

NASDAQ BX, Inc ................................................................................................................. 0.70 13 2 

MIAX PEARL, LLC .............................................................................................................. 0.61 14 2 

Nasdaq MRX, LLC ............................................................................................................... 0.13 15 2 

[FR Doc. 2018–00314 Filed 1–10–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82448; File No. SR– 

NYSEArca–2017–131] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing of 

Amendment No. 2 and Order 

Approving on an Accelerated Basis a 

Proposed Rule Change, as Modified by 

Amendment No. 2, To List and Trade 

Shares of the Sprott Physical Gold and 

Silver Trust Under NYSE Arca Rule 

8.201–E 

January 5, 2018. 

I. Introduction 

On November 9, 2017, NYSE Arca, 

Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’ or 

‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

list and trade shares of the Sprott 

Physical Gold and Silver Trust under 

NYSE Arca Rule 8.201–E. The proposed 

rule change was published for comment 

in the Federal Register on November 24, 

2017.3 On December 21, 2017, the 

Exchange filed Amendment No. 1 to the 

proposed rule change, which 

superseded the proposed rule change as 

originally filed. On January 4, 2018, the 

Exchange filed Amendment No. 2 to the 

proposed rule change, which 

superseded the proposed rule change as 

modified by Amendment No. 1.4 The 

Commission has not received any 

comments on the proposed rule change. 


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