Document ID: SEC-2021-0660-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq GEMX, LLC
Posted Date: 2021-05-10T04:00Z

[Federal Register Volume 86, Number 88 (Monday, May 10, 2021)]
[Notices]
[Pages 24979-24989]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09784]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91756; File No. SR-GEMX-2021-03]

Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Adopt a Fee 
Schedule To Establish Fees for Industry Members Related to the National 
Market System Plan Governing the Consolidated Audit Trail

May 4, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 21, 2021, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III, below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt a fee schedule to establish fees for 
Industry Members related to the National Market

[[Page 24980]]

System Plan Governing the Consolidated Audit Trail (the ``CAT NMS 
Plan'' or ``Plan'').\3\
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    \3\ Unless otherwise specified, capitalized terms used in this 
rule filing are defined as set forth in Rule General 7 (Consolidated 
Audit Trail Compliance) (GEMX General 7 incorporates The Nasdaq 
Stock Market LLC General 7 by reference).
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    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/gemx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    Under the CAT NMS Plan, the Operating Committee of the Consolidated 
Audit Trail, LLC (``Company'') (``Operating Committee'') has discretion 
to establish funding for the Company to operate the CAT, including 
establishing fees that the Participants will pay, and establishing fees 
for Industry Members that will be implemented by the Participants.\4\ 
The Operating Committee has filed with the SEC a proposal to amend the 
CAT NMS Plan to implement a revised funding model for the CAT (``CAT 
Funding Model'') and to establish a fee schedule for Participant CAT 
fees (``Proposed CAT Fee Plan Amendment'').\5\ The Proposed CAT Fee 
Plan Amendment describes the CAT Funding Model in detail, including the 
proposal to charge Industry Members CAT fees. The Participants are 
required to file with the SEC under Section 19(b) of the Exchange Act 
any CAT fees applicable to Industry Members that the Operating 
Committee approves.\6\ Accordingly, the purpose of this proposed rule 
change is to implement the required fee schedule provisions for CAT 
fees applicable to Industry Members that are GEMX members in accordance 
with the CAT Funding Model. The fee schedule provisions will become 
operative upon the SEC's approval of the Proposed CAT Fee Plan 
Amendment.
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    \4\ Section 11.1(b) of the CAT NMS Plan.
    \5\ See Securities Exchange Act Release No. 91555 (April 14, 
2017), 86 FR 21050 (April 21, 2021) (``Proposed CAT Fee Plan 
Amendment'').
    \6\ Section 11.1(b) of the CAT NMS Plan.
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(1) CAT Funding Model
    Under the CAT Funding Model set out in the Proposed CAT Fee Plan 
Amendment, the CAT fees applicable to Participants and Industry Members 
for the relevant quarter would be designed to cover the total CAT costs 
associated with developing, implementing and operating the CAT for the 
relevant quarter (``Total CAT Costs'').\7\ The CAT Funding Model would 
implement a bifurcated funding model, where these costs would be borne 
by both Participants and Industry Members. Industry Members as a group 
would pay 75% of the Total CAT Costs (the ``Industry Member 
Allocation''), and Participants as a group would pay 25% of the Total 
CAT Costs (the ``Participant Allocation'').\8\
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    \7\ Note that certain costs would be excluded from the 
Historical CAT Assessment Costs, as discussed in more detail below. 
See Proposed CAT Fee Plan Amendment at 21051 [sic], 21074 [sic].
    \8\ Each Industry Member and Participant CAT Reporter would be 
required to pay CAT fees established via the CAT Funding Model. CAT 
Reporting Agents acting in their role as such would not have an 
obligation to pay CAT fees. See Proposed CAT Fee Plan Amendment at 
21051 [sic].
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    Under the CAT Funding Model set out in the Proposed CAT Fee Plan 
Amendment, each Industry Member will pay a CAT fee that is calculated 
by multiplying each Industry Member's message traffic percentage of the 
total message traffic of all Industry Members during the relevant time 
period by the Industry Member Allocation, subject to certain market 
maker message traffic discounts, a Minimum Industry Member CAT Fee and 
a Maximum Industry Member CAT Fee. Each Industry Member that is an 
Options Market Maker will have a discount based on the options trade-
to-quote ratio applied to its Options Market Maker message traffic when 
calculating that Industry Member's message traffic, and each Industry 
Member that is an Equity Market Maker will have a discount based on the 
NMS Stock trade-to-quote ratio applied to its Equity Market Maker 
message traffic when calculating that Industry Member's message 
traffic. In addition, each Industry Member will pay a Minimum Industry 
Member CAT Fee of $125 per quarter if its CAT fee would be less than 
$125 per quarter when calculated based on message traffic. Furthermore, 
an Industry Member's CAT fee would be subject to the Maximum Industry 
Member CAT Fee. The Maximum Industry Member CAT Fee would be the fee 
calculated based on 8% of the total message traffic for all Industry 
Members. If an Industry Member is subject to the Maximum Industry 
Member CAT Fee, any excess amount which the Industry Member would have 
paid as a fee above such Maximum Industry Member CAT Fee will be re-
allocated among all Industry Members (including any Industry Members 
subject to the Maximum Industry Member CAT Fee and any Industry Members 
subject to the Minimum Industry Member CAT Fee) in accordance with each 
Industry Member's percentage of total message traffic. Each of these 
aspects of the Industry Member CAT fee are discussed in more detail 
below.
(A) CAT Fees for Both Industry Members and Participants
    Under the CAT Funding Model, both Participants and Industry Members 
would contribute to the funding of the CAT by paying a CAT fee.\9\ As 
permitted by Rule 613, the CAT NMS Plan requires Industry Members to 
pay a CAT fee. Rule 613(a)(1)(vii)(D) contemplates Industry Members 
contributing to the payment of CAT costs. Specifically, this provision 
requires the CAT NMS Plan to address ``[h]ow the plan sponsors propose 
to fund the creation, implementation, and maintenance of the 
consolidated audit trail, including the proposed allocation of such 
estimated costs among the plan sponsors, and between the plan sponsors 
and members of the plan sponsors.''
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    \9\ Proposed CAT Fee Plan Amendment at 21054-55.
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    In addition, as approved by the SEC, the CAT NMS Plan specifically 
contemplates CAT fees to be paid by both Industry Members and 
Participants. Section 11.1(b) states that ``the Operating Committee 
shall have discretion to establish funding for the Company, including: 
(i) Establishing fees that the Participants shall pay; and (ii) 
establishing fees for Industry Members that shall be implemented by the 
Participants.'' \10\ The Commission stated in approving the CAT NMS 
Plan the following:
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    \10\ See also Sections 11.1(c), 11.2(c), and 11.3(a) and (b) of 
the CAT NMS Plan.

    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, as noted 
above, the Exchange Act specifically permits the Participants to 
charge

[[Page 24981]]

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, 
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and not unrelated SRO services.\11\

    \11\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81 
FR 84696, 84794 (Nov. 23, 2016) (``CAT NMS Plan Approval Order'').

    In its recent amendments to the CAT NMS Plan, the SEC reaffirmed 
the ability for the Participants to charge Industry Members a CAT fee. 
Specifically, the SEC noted that the amendments were not intended to 
change the basic funding structure for the CAT, which may include fees 
established by the Operating Committee, and implemented by the 
Participants, to recover from Industry Members the costs and expenses 
incurred by the Participants in connection with the development and 
implementation of the CAT.\12\
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    \12\ Securities Exchange Act Rel. No. 88890 (May 15, 2020), 85 
FR 31322, 31329 (May 22, 2020) (``Financial Accountability 
Release'').
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    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,'' \13\ thereby benefitting all market participants. 
As such, both Participants and Industry Members should contribute to 
covering the cost of the CAT.
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    \13\ Securities Exchange Act Rel. No. 67457 (Jul. 18, 2012), 77 
FR 45722, 45726 (Aug. 1, 2012).
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(B) 75%/25% Allocation Between Industry Members and Participants
    The CAT NMS Plan as approved by the Commission provides the 
Operating Committee with discretion to establish CAT fees to be paid by 
Participants and Industry Members. The CAT Funding Model as set out in 
the Proposed CAT Fee Plan Amendment contemplates allocating CAT costs 
between Participants and Industry Members to permit the calculation of 
CAT fees based on market share for Participants and based on message 
traffic for Industry Members.\14\ Under the CAT Funding Model as 
proposed, Industry Members as a group would pay 75% of the Total CAT 
Costs (the ``Industry Member Allocation''), and Participants as a group 
would pay 25% of the Total CAT Costs (the ``Participant 
Allocation'').\15\ As discussed in more detail below, the Industry 
Member Allocation of 75% of the Total CAT Costs is included in proposed 
paragraphs (a)(2), (b)(2), (c)(2) and (d)(2) of the fee schedule for 
the Consolidated Audit Trail Funding Fees. In each such paragraph, the 
calculation of the Industry Member CAT fees is based on 75% of the 
Total CAT Costs.
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    \14\ See Proposed CAT Fee Plan Amendment at 21055-56 [sic]. Note 
that, in the funding model set forth in Article XI of the CAT NMS 
Plan (``Original Funding Model''), costs were allocated between 
Execution Venues and certain Industry Members, whereas the CAT 
Funding Model would allocate costs between Participants and Industry 
Members.
    \15\ For additional discussions regarding the 75%-25% 
allocation, see Proposed CAT Fee Plan Amendment at 21056-58 [sic].
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(C) Message Traffic
    The Industry Member Allocation would be allocated to each Industry 
Member based on message traffic.\16\ Each Industry Member CAT Reporter 
would pay a CAT fee that is calculated by multiplying each Industry 
Member's percentage of the total message traffic of all Industry 
Members each quarter by the Industry Member Allocation, subject to 
certain market making discounts, Minimum Industry Member CAT Fees, and 
Maximum Industry Member CAT Fees. To implement the use of message 
traffic in the calculation of Industry Member CAT fees, the Exchange 
proposes to describe the use of message traffic in proposed paragraphs 
(a)(2), (b)(2), (c)(2) and (d)(2) of the fee schedule. In each such 
paragraph, the Industry Member CAT fees are calculated based on 
Industry Members' message traffic in the CAT.
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    \16\ For additional discussions regarding the use of message 
traffic for calculating Industry Member CAT fees, see Proposed CAT 
Fee Plan Amendment at 21059 [sic].
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    As set out in the Proposed CAT Fee Plan Amendment,\17\ message 
traffic would be calculated based on Industry Members' Reportable 
Events reported to the CAT as defined in the CAT Reporting Technical 
Specifications for Industry Members (``IM Reporting Tech Specs'') as 
amended from time to time.\18\ The Reportable Events may vary over time 
if the IM Reporting Tech Specs are amended.\19\ However, Reportable 
Events in the current IM Reporting Tech Specs that will be counted as 
message traffic include, but are not limited to, such events as the New 
Order Event, the Order Route Event and the Trade Event. In addition, 
message traffic will not include reporting activity related to Customer 
information as set forth in the CAT Reporting Customer and Account 
Technical Specifications for Industry Members.\20\
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    \17\ See Proposed CAT Fee Plan Amendment at 21056-57.
    \18\ The CAT Reporting Technical Specifications for Industry 
Members are available at www.catnmsplan.com.
    \19\ Due to the Phased Reporting approach, all Reportable Events 
will not be reported until all Industry Members are reporting all 
Reportable Events to the CAT. For example, Phase 2d CAT Reporting is 
scheduled for December 2021, and Small Industry Non-OATS Reporters 
are not required to report until December 2021. In addition, certain 
Reportable Events, such as simple options manual orders and OTC link 
messages, are not required to be reported until later in the Phased 
Reporting. For a detailed description of such Reportable Events, see 
CAT Reporting Technical Specifications for Industry Members 
(available at www.catnmsplan.com). For the Industry Member CAT 
reporting timeline, see, e.g., FINRA Rule 6895(c). CAT costs will be 
allocated based on the Reportable Events reported to the CAT in any 
relevant quarter, regardless of whether all Industry Members are 
reporting to the CAT or all Reportable Events are required to be 
reported to the CAT for a relevant quarter. See Proposed CAT Fee 
Plan Amendment at 27.
    \20\ The CAT Reporting Customer and Account Technical 
Specifications for Industry Members are available at 
www.catnmsplan.com.
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(D) Market Maker Discounts
    As set out in the Proposed CAT Fee Plan Amendment, the Operating 
Committee recognized that treating Options Market Maker message traffic 
and Equity Market Maker message traffic in the same way as other 
message traffic for purposes of calculating Industry Member CAT fees 
may result in an undue or inappropriate burden on competition or may 
lead to a reduction in market quality.\21\ For example, charging 
Industry Members on the basis of message traffic may 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. Accordingly, the Operating Committee determined to discount 
Options Market Maker message traffic by the trade-to-quote ratio for 
Listed Options when calculating message traffic for Options Market 
Makers, and to discount Equity Market Maker message traffic by the 
trade-to-quote ratio for NMS Stocks when calculating message traffic 
for Equity Market Makers. The message traffic of Options Market Makers 
and Equity Market Makers, as discounted, would be counted as part of 
the total message traffic for all Industry Members. The practical 
effect of applying such discounts for market making activity would be 
to lower the CAT fees for Options Market Makers and Equity Market 
Makers.
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    \21\ See Proposed CAT Fee Plan Amendment at 21057-58.
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(I) Options Market Maker Discount
    Each Industry Member that is an Options Market Maker \22\ would 
have a

[[Page 24982]]

discount based on the options trade-to-quote ratio applied to its 
options market making message traffic when calculating that Industry 
Member's message traffic to prevent a potentially disproportionate 
effect on options market making due to such message traffic.\23\ 
Specifically, for each Options Market Maker, a discount would be 
applied to (1) all message traffic reported to the CAT by the Options 
Market Maker related to an order originated by a market maker in its 
market making account for a security in which it is registered, 
regardless of where the order is ultimately routed or executed; \24\ 
and (2) all message traffic for which a ``quote sent time'' is reported 
by an Options Exchange on behalf of the given Options Market Maker.
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    \22\ Section 1.1 of the CAT NMS Plan; Nasdaq General 7 Section 
1(ee) defines an ``Options Market Maker'' as ``a broker-dealer 
registered with an exchange for the purpose of making markets in 
options contracts traded on the exchange.'' (GEMX General 7 
incorporates The Nasdaq Stock Market LLC General 7 by reference).
    \23\ See Proposed CAT Fee Plan Amendment at 21058.
    \24\ Under the current version of the IM Reporting Tech Specs, 
the discount would apply to new order messages and all related 
messages reported to the CAT by an Options Market Maker with an 
accountHolderType = O. See CAT FAQ C5 (available at 
www.catnmsplan.com). The discount would not apply to messages by an 
Industry Member that are associated with any other 
accountHolderType. The IM Reporting Tech Specs may be amended from 
time to time and this designation could be changed. See Proposed CAT 
Fee Plan Amendment at 21058.
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    The relevant trade-to-quote ratio for the Options Market Maker 
discount would be calculated each quarter based on the prior quarter's 
SIP Data that is included in CAT Data. The discount is calculated by 
dividing the adjusted trade count (that is, the total number of trades 
for the quarter minus the total number of trade busts) by the total 
number of quotes received by the securities information processors 
(``SIP''). As an example, the trade-to-quote ratio for Listed Options 
for the fourth quarter of 2020 was 0.01%.
    Accordingly, each Options Market Maker's discounted message traffic 
count would be calculated by multiplying its message traffic by the 
options trade-to-quote ratio. The Options Market Maker's CAT fee then 
would be calculated by multiplying its discounted percentage of the 
total message traffic of all Industry Members during the relevant time 
period \25\ by the Industry Member Allocation, subject to the Minimum 
Industry Member CAT Fee and the Maximum Industry Member CAT Fee.
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    \25\ Note that the total message traffic of all Industry Members 
during the relevant time period will be calculated using the 
discounted total for all Options Market Makers. See Proposed CAT Fee 
Plan Amendment at 21058.
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    To implement the Options Market Maker discount, the Exchange 
proposes to add paragraph (g)(1) to the fee schedule. Paragraph (g)(1) 
would state that ``[w]hen calculating the message traffic of an 
Industry Member that is an Options Market Maker, the Options Market 
Maker's market making message traffic would be discounted by 
multiplying its Listed Options market making message traffic by the 
Listed Options trade-to-quote ratio.'' In addition, proposed paragraphs 
(a)(2), (b)(2), (c)(2) and (d)(2) of the fee schedule would state that 
the message traffic calculation would be subject to applicable 
discounts for Options Market Maker message traffic for each of the four 
Industry Member CAT fees.
(II) Equity Market Maker Discount
    Similarly, each Industry Member that is an equity market maker in 
NMS Stocks (``Equity Market Maker'') would have a discount based on the 
NMS Stock trade-to-quote ratio applied to its market making message 
traffic in NMS Stocks when calculating that Industry Member's message 
traffic to prevent a potentially disproportionate effect on market 
making in NMS Stocks.\26\ Specifically, for each Equity Market Maker, a 
discount would be applied to all message traffic reported to the CAT by 
the Equity Market Maker related to an order originated by a market 
maker in its market making account for a security in which it is 
registered,\27\ regardless of where the order is ultimately routed or 
executed.\28\
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    \26\ See Proposed CAT Fee Plan Amendment at 21058.
    \27\ Note that Equity Market Makers do not have a quote sent 
time exemption comparable to the Options Market Maker quote sent 
time exemption, as discussed above.
    \28\ Under the current version of the IM Reporting Tech Specs, 
the discount would apply to new order messages and all related 
messages reported to the CAT by an Equity Market Maker with an 
accountHolderType = O. See CAT FAQ C5 (available at 
www.catnmsplan.com). The discount would not apply to messages by the 
Industry Member that are associated with any other 
accountHolderType. The IM Reporting Tech Specs may be amended from 
time to time and this designation could be changed. See Proposed CAT 
Fee Plan Amendment at 21058.
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    The relevant trade-to-quote ratio for the Equity Market Maker 
discount would be calculated each quarter based on the prior quarter's 
SIP Data that is included in CAT Data. The discount is calculated by 
dividing the adjusted trade count (that is, the total number of trades 
for the quarter minus the total number of trade busts) by the total 
number of quotes received by the SIP. As an example, the trade-to-quote 
ratio for NMS Stocks for the fourth quarter of 2020 was 4.77%.
    The Equity Market Maker CAT fee would be calculated in the same 
manner as the Options Market Maker CAT fee. Each Equity Market Maker's 
discounted message traffic count would be calculated by multiplying its 
message traffic by the NMS Stock trade-to-quote ratio. The Equity 
Market Maker CAT fee then would be calculated by-multiplying its 
discounted percentage of the total message traffic of all Industry 
Members during the relevant time period \29\ by the Industry Member 
Allocation, subject to the Minimum Industry Member CAT Fee and the 
Maximum Industry Member CAT Fee.
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    \29\ Note that the total message traffic of all Industry Members 
during the relevant time period will be calculated using the 
discounted total for all Equity Market Makers. See Proposed CAT Fee 
Plan Amendment at 21058.
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    To implement the Equity Market Maker discount, the Exchanges 
proposes to add paragraph (g)(2) to the fee schedule. Paragraph (g)(2) 
would state that ``[w]hen calculating the message traffic of an 
Industry Member that is an equity market maker in NMS Stocks (``Equity 
Market Maker''), the Equity Market Maker's market making message 
traffic would be a [sic] discounted by multiplying its market making 
message traffic in NMS Stocks by the NMS Stock trade-to-quote ratio.'' 
In addition, proposed paragraphs (a)(2), (b)(2), (c)(2) and (d)(2) of 
the fee schedule would state that the message traffic calculation would 
be subject to applicable discounts for Equity Market Maker message 
traffic for each of the four Industry Member CAT fees.
(E) Minimum Industry Member CAT Fee
    Each Industry Member would be required to pay a Minimum Industry 
Member CAT Fee of $125 per quarter if its CAT fee would be less than 
$125 per quarter when calculated based on message traffic.\30\ All 
Industry Members required to report to the CAT, including those that 
have not yet begun to report to the CAT due to the phased 
implementation schedule for the CAT, would be subject to the Minimum 
Industry Member CAT Fee. If any Industry Member is required to pay the 
Minimum Industry Member CAT Fee, the total additional amount paid by 
all such Industry Members over the amount they otherwise would have 
paid as a result of their message traffic calculation would be 
discounted from all Industry Members other than those that were subject 
to a Minimum Industry Member

[[Page 24983]]

CAT Fee in accordance with their message traffic percentage.\31\
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    \30\ For additional discussions regarding the Minimum Industry 
Member CAT Fee, see Proposed CAT Fee Plan Amendment at 21058-59.
    \31\ Options Market Makers and Equity Market Makers will be 
required to pay the Minimum Industry Member CAT Fee if their 
quarterly CAT fee calculated with the market maker discounts is less 
than $125 per quarter.
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    To implement the Minimum Industry Member CAT Fee, the Exchange 
proposes to add paragraph (h) to the fee schedule. Proposed paragraph 
(h)(1) of the fee schedule would state that ``[t]he Minimum Industry 
Member CAT Fee is $125 per quarter.'' Proposed paragraph (h)(2) of the 
fee schedule would state that ``[i]f any Industry Member is required to 
pay the Minimum Industry Member CAT Fee, the total additional amount 
paid by all such Industry Members over the amount they otherwise would 
have paid as a result of their message traffic calculation would be 
discounted from all Industry Members other than those that were subject 
to a Minimum Industry Member CAT Fee in accordance with their message 
traffic percentage (``Minimum Industry Member CAT Fee Re-
Allocation'').'' In addition, proposed paragraphs (a)(2), (b)(2), 
(c)(2) and (d)(2) of the fee schedule describes the Minimum Industry 
Member CAT Fee Re-Allocation for each of the four Industry Member CAT 
fees.
(F) Maximum Industry Member CAT Fee
    An Industry Member's CAT fee also would be subject to a Maximum 
Industry Member CAT Fee.\32\ The Maximum Industry Member CAT Fee would 
be the fee calculated based on 8% of the total message traffic for all 
Industry Members. If an Industry Member's fee is subject to the Maximum 
Industry Member CAT Fee, any excess amount which the Industry Member 
would have paid as a fee above such Maximum Industry Member CAT Fee 
will be re-allocated among all Industry Members (including any Industry 
Members subject to the Maximum Industry Member CAT Fee and any Industry 
Members subject to the Minimum Industry Member CAT Fee) in accordance 
with each Industry Member's percentage of total message traffic.
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    \32\ For additional discussions regarding the Maximum Industry 
Member CAT Fee, see Proposed CAT Fee Plan Amendment at 21058-59 
[sic].
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    To implement the Maximum Industry Member CAT Fee, the Exchange 
proposes to add proposed paragraph (f) to the ``Consolidated Audit 
Trail Funding Fees'' section of its fee schedule. Proposed paragraph 
(f)(1) would state that ``[t]he Maximum Industry Member CAT Fee for 
each quarter is 8% of the total CAT costs for the relevant quarter.'' 
In addition, proposed paragraph (f)(2) would state that

    If an Industry Member's CAT Fee that is calculated pursuant to 
paragraph (a)(2), (b)(2), (c)(2), (d)(2), as applicable, without 
reference to the Maximum Industry Member CAT Fee and the Maximum 
Industry Member CAT Fee Re-Allocation, is greater than the Maximum 
Industry Member CAT Fee, then the Industry Member will be subject to 
the Maximum Industry Member CAT Fee. If any Industry Member is 
subject to the Maximum Industry Member CAT Fee, then any excess 
amount which the Industry Member otherwise would have paid as a fee 
above such Maximum Industry Member CAT Fee will be re-allocated 
among all Industry Members, including any Industry Member that is 
subject to the Maximum Industry Member CAT Fee or subject to the 
Minimum Industry Member CAT Fee in accordance with their message 
traffic percentage (``Maximum Industry Member CAT Fee Re-
Allocation'').

    Furthermore, proposed paragraphs (a)(1), (b)(1), (c)(1) and (d)(1) 
would state that an Industry Member's CAT fee calculated pursuant to 
(a)(1), (b)(1), (c)(1) and (d)(1) would include any applicable Maximum 
Industry Member CAT Fee Re-Allocation. Finally, proposed paragraphs 
(a)(2), (b)(2), (c)(2) and (d)(2) would state that an Industry Member's 
CAT fee calculated pursuant to paragraph (a)(2), (b)(2), (c)(2) or 
(d)(2) is subject to the Maximum Industry Member CAT Fee and the 
Maximum Industry Member CAT Fee Re-Allocation.
(G) Total CAT Costs
    As set out in the Proposed CAT Fee Plan Amendment, the Total CAT 
Costs for the year would be comprised of all fees, costs and expenses 
incurred by or for the Company in connection with the development, 
implementation and operation of the CAT during this period.\33\
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    \33\ See Proposed CAT Fee Plan Amendment at 21063.
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    For purposes of the Historical CAT Assessment, the Total CAT Costs 
would be $193,273,342, as set forth in the Proposed CAT Fee Plan 
Amendment. Accordingly, the quarterly CAT fee for the Historical CAT 
Assessment will be calculated based on costs of $36,238,752, which is 
1/4th of 75% of the Total CAT Costs. This amount is set forth in 
proposed paragraph (b)(2) of the fee schedule.
    In addition, proposed paragraph (i) of the ``Consolidated Audit 
Trail Funding Fees'' section of its fee schedule describes the Total 
CAT Costs to be used in calculating the Period 3 CAT Fee, the Period 4 
CAT Fee and the Quarterly CAT Fees. Proposed paragraph (i)(1) of the 
fee schedule would state that ``[t]he Period 3 CAT Costs shall be the 
total CAT costs set forth in the year-end financial statements of the 
Consolidated Audit Trail, LLC for 2021.'' Proposed paragraph (i)(2) of 
the fee schedule would state that ``[t]he Period 4 CAT Costs shall be 
the total CAT costs set forth in the year-end financial statements of 
the Consolidated Audit Trail, LLC for 2022.'' Proposed paragraph (i)(3) 
of the fee schedule would state the following with regard to the 
Quarterly CAT Fees:

    For purposes of the Quarterly CAT Fee, the budgeted Total CAT 
Costs for the relevant year shall be the total CAT costs set forth 
in the annual operating budget approved by the Operating Committee 
pursuant to Section 11.1(a) of the CAT NMS Plan for the relevant 
year. The budgeted Total CAT Costs for the relevant year may be 
adjusted on a quarterly basis as the Operating Committee reasonably 
deems appropriate for the prudent operation of the Company. To the 
extent that the Operating Committee adjusts the total budgeted costs 
for the CAT for the relevant year during its quarterly budget 
review, the adjusted budgeted costs for the CAT will be used in 
calculating the remaining CAT fees for that year.
(2) Proposed CAT Fees
    The Exchange proposes to charge its Industry Members fees related 
to CAT costs. To implement these CAT fees, the Exchange proposes to add 
a section entitled ``Consolidated Audit Trail Funding Fees'' to its fee 
schedule, and to describe the CAT fees in that section.
(A) Historical CAT Assessment (for Pre-Period 1, Period 1 and Period 2)
    As set forth in the Proposed CAT Fee Plan Amendment, the Operating 
Committee determined to charge Industry Members a historical assessment 
(``Historical CAT Assessment'') to recover certain CAT costs incurred 
prior to January 1, 2021 (``Historical CAT Assessment Costs'').\34\ 
Specifically, as detailed in the Proposed CAT Fee Plan Amendment, the 
Historical CAT Assessment is intended to collect from Industry Members 
75% of certain costs incurred through June 22, 2020, the effective date 
for the Financial Accountability Milestones,\35\ certain costs from 
Period 1 of the Financial Accountability Milestones (which covered the 
period from June 22, 2020--July 31, 2020) and certain costs from Period 
2 of the Financial

[[Page 24984]]

Accountability Milestones (which covered the period from August 1, 
2020--December 31, 2020). The Total CAT Costs, excluding Excluded Costs 
(as defined below) and certain costs related to the conclusion of the 
relationship with Thesys CAT, LLC is $193,273,342. The Historical CAT 
Assessment is designed to recover 75% of these CAT costs. Accordingly, 
the Historical CAT Assessment Costs would be $144,955,006.
---------------------------------------------------------------------------

    \34\ See Proposed CAT Fee Plan Amendment at 21064-65.
    \35\ See Section 11.6 of the CAT NMS Plan; and Financial 
Accountability Release.
---------------------------------------------------------------------------

    Using the Historical CAT Assessment Costs, as set forth in the 
Proposed CAT Fee Plan Amendment, the Operating Committee will calculate 
the Historical CAT Assessment owed by each Industry Member in 
accordance with the CAT Funding Model. Per the Proposed CAT Fee Plan 
Amendment, the Operating Committee plans to recover the Historical CAT 
Assessment Costs over a period of four calendar quarters, commencing 
upon the SEC's approval of the Historical CAT Assessment. Each quarter, 
each Industry Member will pay the greater of the minimum fee of $125 or 
the Industry Member's fee calculated based on message traffic (subject 
to the market making discounts and the maximum fee). The message 
traffic fee would be calculated by multiplying the percentage of the 
Industry Member's message traffic of the total Industry Member message 
traffic by $36,238,752, which is 1/4th of the Historical CAT Assessment 
Costs (subject to applicable discounts for Options Market Maker message 
traffic and Equity Market Maker message traffic, the Maximum Industry 
Member CAT Fee, the Maximum Industry Member CAT Fee Re-Allocation, and 
the Minimum Industry Member CAT Fee Re-Allocation). Each Industry 
Member's message traffic would be calculated using CAT Data from the 
prior quarter. Industry Members would be required to commence paying 
the Historical CAT Assessment in the first quarter after SEC approval 
of the Historical CAT Assessment, based on CAT Data from the quarter in 
which the SEC approved the CAT fees.
    To implement the Historical CAT Assessment, the Exchange proposes 
to add proposed paragraph (b) to the ``Consolidated Audit Trail Funding 
Fees'' section of its fee schedule. Proposed paragraph (b) would state 
that ``each Industry Member shall pay an Historical CAT Assessment in 
the amount of the greater of the following each quarter for four 
quarters commencing upon approval of the Historical CAT Assessment by 
the SEC: (1) Minimum Industry Member CAT Fee (plus any applicable 
Maximum Industry Member CAT Fee Re-Allocation); or (2) the amount 
calculated by multiplying the percentage of the Industry Member's 
message traffic of the total Industry Member message traffic based on 
the prior quarter's message traffic by $36,238,752 (subject to 
applicable discounts for Options Market Maker message traffic and 
Equity Market Maker message traffic, the Maximum Industry Member CAT 
Fee, the Maximum Industry Member CAT Fee Re-Allocation and the Minimum 
Industry Member CAT Fee Re-Allocation).''
    In accordance with Section 11.6(b) of the CAT NMS Plan and as 
provided in the Proposed CAT Fee Plan Amendment, the proposed 
Historical CAT Assessment seeks to recover costs that are related to 
Post-Amendment Expenses incurred during Period 1. Period 1 began on 
June 22, 2020, the effective date of Section 11.6 of the CAT NMS Plan, 
and concluded on July 31, 2020, the date of Initial Industry Member 
Core Equity and Options Reporting. As indicated by the Participants' 
Quarterly Progress Report,\36\ Initial Industry Member Core Equity and 
Option Reporting was completed on schedule by July 31, 2020. As 
discussed above, the Historical CAT Assessment Costs to be recovered 
via the Historical CAT Assessment would include fees, costs and 
expenses incurred by or for the Company in connection with the 
development, implementation and operation of the CAT during the period 
from June 22, 2020 through July 31, 2020.
---------------------------------------------------------------------------

    \36\ Q3 2020 Quarterly Progress Report (Oct. 30, 2020) 
(available at www.catnmsplan.com).
---------------------------------------------------------------------------

    As provided in the Proposed CAT Fee Plan Amendment, the proposed 
Historical CAT Assessment seeks to recover costs that are related to 
Post-Amendment Expenses incurred during Period 2. Period 2 began on 
August 1, 2020, and concluded on December 31, 2020, the date of the 
Full Implementation of Core Equity Reporting. As indicated by the 
Participants' Quarterly Progress Report,\37\ Full Implementation of 
Core Equity Reporting was completed on schedule by December 31, 2020. 
As discussed above, the Historical CAT Assessment Costs to be recovered 
via the Historical CAT Assessment would include fees, costs and 
expenses incurred by or for the Company in connection with the 
development, implementation and operation of the CAT during the period 
from August 1, 2020 through December 31, 2020. Accordingly, proposed 
paragraph (b) of the ``Consolidated Audit Trail Funding Fees'' section 
of its fee schedule would state that Industry Members will be required 
to pay the Historical CAT Assessment ``[s]ubject to the requirements of 
Section 11.6 of the CAT NMS Plan.''
---------------------------------------------------------------------------

    \37\ Q4 2020 Quarterly Progress Report (Jan. 29, 2021) 
(available at www.catnmsplan.com).
---------------------------------------------------------------------------

    The following chart summarizes the imposition of the Historical CAT 
Assessment:

----------------------------------------------------------------------------------------------------------------
                                                                    CAT data used for
           Quarterly CAT fee               Quarterly industry        message traffic            Payment due
                                           member allocation           calculation
----------------------------------------------------------------------------------------------------------------
Quarterly CAT Fee #1..................  $36,238,752............  Quarter of SEC approval  1st quarter after SEC
                                                                  of Historical CAT        approval of Industry
                                                                  Assessment.              Member CAT Fees as
                                                                                           set forth in the CAT
                                                                                           Fee Plan Amendment.
Quarterly CAT Fee #2..................  36,238,752.............  1st quarter after SEC    2nd quarter after SEC
                                                                  approval of Historical   approval of Industry
                                                                  CAT Assessment.          Member CAT Fees as
                                                                                           set forth in the CAT
                                                                                           Fee Plan Amendment.
Quarterly CAT Fee #3..................  36,238,752.............  2nd quarter after SEC    3rd quarter after SEC
                                                                  approval of Historical   approval of Industry
                                                                  CAT Assessment.          Member CAT Fees as
                                                                                           set forth in the CAT
                                                                                           Fee Plan Amendment.
Quarterly CAT Fee #4..................  36,238,752.............  3rd quarter after SEC    4th quarter after SEC
                                                                  approval of Historical   approval of Industry
                                                                  CAT Assessment.          Member CAT Fees as
                                                                                           set forth in the CAT
                                                                                           Fee Plan Amendment.
----------------------------------------------------------------------------------------------------------------

[[Page 24985]]

(B) Period 3 CAT Fee
    Per the Proposed CAT Fee Plan Amendment, the Operating Committee 
also determined to charge Industry Members a quarterly fee to recover a 
percentage of the Total CAT Costs incurred from January 1, 2021 through 
December 31, 2021, referred to as the Period 3 CAT Fee.\38\ The Total 
CAT Costs incurred from January 1, 2021 through December 31, 2021 
(``Period 3 CAT Costs'') will be calculated at the completion of 2021. 
Specifically, the Period 3 CAT Costs will be the total actual costs 
incurred for the CAT for 2021 as set forth in the 2021 financial 
statements for the Company.
---------------------------------------------------------------------------

    \38\ See Proposed CAT Fee Plan Amendment at 21065-66.
---------------------------------------------------------------------------

    Using the Period 3 CAT Costs, as set forth in the Proposed CAT Fee 
Plan Amendment, the Operating Committee will calculate the Period 3 CAT 
Fee owed by each Industry Member in accordance with the CAT Funding 
Model. Per the Proposed CAT Fee Plan Amendment, the Operating Committee 
plans to recover Period 3 CAT Costs over a period of four calendar 
quarters, commencing in 2022. Each quarter, each Industry Member will 
pay the greater of the minimum fee of $125 or the Industry Member's fee 
calculated based on message traffic. The message traffic fee would be 
calculated by multiplying the percentage of the Industry Member's 
message traffic of the total Industry Member message by ROTFLth of 75% 
of the Period 3 CAT Costs traffic (subject to applicable discounts for 
Options Market Maker message traffic and Equity Market Maker message 
traffic, the Maximum Industry Member CAT Fee, the Maximum Industry 
Member CAT Fee Re-Allocation and the Minimum Industry Member CAT Fee 
Re-Allocation). Each Industry Member's message traffic would be 
calculated using CAT Data from the prior quarter. Industry Members 
would be required to commence paying the Period 3 CAT Fee in the second 
quarter of 2022, based on CAT Data from the first quarter of 2022.
    The Exchange understands that the Operating Committee will announce 
via a CAT alert after the end of 2021 the Total CAT Costs for 2021 to 
be used in calculating the quarterly Period 3 CAT Fees. Such Total CAT 
Costs will be set forth in the year-end financial statements of the 
Consolidated Audit Trail, LLC. Such financial statements are required 
to be prepared in accordance with Section 9.2 of the CAT NMS Plan, 
including requirements related to compliance with GAAP, auditing by an 
independent public accounting firm and making the statements publicly 
available.
    To implement the Period 3 CAT Fee, the Exchange proposes to add 
proposed paragraph (c) to the ``Consolidated Audit Trail Funding Fees'' 
section of its fee schedule. Proposed paragraph (c) would state that 
``each Industry Member shall pay a Period 3 CAT Fee in the amount of 
the greater of the following each quarter for four quarters commencing 
in the second quarter of 2022: (1) Minimum Industry Member CAT Fee 
(plus any applicable Maximum Industry Member CAT Fee Re-Allocation); or 
(2) the amount calculated by multiplying the percentage of the Industry 
Member's message traffic of the total Industry Member message traffic 
based on the prior quarter's message traffic by 1/4th of 75% of the 
Period 3 Total CAT Costs (subject to applicable discounts for Options 
Market Maker message traffic and Equity Market Maker message traffic, 
the Maximum Industry Member CAT Fee, the Maximum Industry Member CAT 
Fee Re-Allocation and the Minimum Industry Member CAT Fee Re-
Allocation).''
    Per the Proposed CAT Fee Plan Amendment, the proposed Period 3 CAT 
Fee seeks to recover costs that will be related to Post-Amendment 
Expenses incurred during Period 3. Period 3 began on January 1, 2021 
and is expected to conclude on December 31, 2021, the date of Full 
Availability and Regulatory Utilization of Transactional Database 
Functionality. As discussed above, the Period 3 CAT Costs to be 
recovered via the Period 3 CAT Fee would include fees, costs and 
expenses incurred by or for the Company in connection with the 
development, implementation and operation of the CAT during the period 
from January 1, 2020 through December 31, 2021. The collection of the 
full amount of the Period 3 CAT Fee will depend upon achievement of 
Full Availability and Regulatory Utilization of Transaction Database 
Functionality by December 31, 2021; if not, the amount of the Period 3 
CAT Fee that may be collected from the Industry Members will depend 
upon the fee limitations set forth in Section 11.6(a)(ii) of the CAT 
NMS Plan. Accordingly, proposed paragraph (c) of the ``Consolidated 
Audit Trail Funding Fees'' section of its fee schedule would state that 
Industry Members will be required to pay the Period 3 CAT Fee 
``[s]ubject to the requirements of Section 11.6 of the CAT NMS Plan.''
    The following chart summarizes the imposition of the Period 3 CAT 
Fee:

----------------------------------------------------------------------------------------------------------------
                                                             CAT data used for
         Quarterly CAT fee            Quarterly industry      message traffic              Payment due
                                      member allocation         calculation
----------------------------------------------------------------------------------------------------------------
Quarterly CAT Fee #1..............  1/4th of 75% of the    CAT Data from first   2nd quarter of 2022.
                                     Period 3 CAT Costs     quarter of 2022.
                                     \39\.
Quarterly CAT Fee #2..............  1/4th of 75% of the    CAT Data from second  3rd quarter of 2022.
                                     Period 3 CAT Costs.    quarter of 2022.
Quarterly CAT Fee #3..............  1/4th of 75% of the    CAT Data from third   4th quarter of 2022.
                                     Period 3 CAT Costs.    quarter of 2022.
Quarterly CAT Fee #4..............  1/4th of 75% of the    CAT Data from fourth  1st quarter of 2023
                                     Period 3 CAT Costs.    quarter of 2022.
----------------------------------------------------------------------------------------------------------------

(C) Period 4 CAT Fee
---------------------------------------------------------------------------

    \39\ The Period 3 CAT Costs will be the total actual costs 
incurred for the CAT for 2021 as set forth in the 2021 financial 
statements for the Company.
---------------------------------------------------------------------------

    As set forth in the Proposed CAT Fee Plan Amendment, the Operating 
Committee also determined to charge Industry Members a quarterly fee to 
recover a percentage of the Total CAT Costs incurred from January 1, 
2022 through December 30, 2022, referred to as the Period 4 CAT 
Fee.\40\ The Total CAT Costs incurred from January 1, 2022 through 
December 30, 2022 (``Period 4 CAT Costs'') will be calculated at the 
completion of 2022. Specifically, the Period 4 CAT Costs will be the 
total actual costs incurred for the CAT for 2022 as set forth in the 
2022 financial statements of the Company.
---------------------------------------------------------------------------

    \40\ See Proposed CAT Fee Plan Amendment at 21066-67.
---------------------------------------------------------------------------

    Using the Period 4 CAT Costs, as set forth in the Proposed CAT Fee 
Plan Amendment, the Operating Committee will calculate the Period 4 CAT 
Fee

[[Page 24986]]

owed by each Industry Member in accordance with the CAT Funding Model. 
Per the Proposed CAT Fee Plan Amendment, the Operating Committee plans 
to recover Period 4 CAT Costs over a period of four calendar quarters, 
commencing in 2023. Each quarter, each Industry Member will pay the 
greater of the minimum fee of $125 or the Industry Member's fee 
calculated based on message traffic. The message traffic fee would be 
calculated by multiplying the percentage of the Industry Member's 
message traffic of the total Industry Member message traffic by 1/4th 
of 75% of the Period 4 CAT Costs (subject to applicable discounts for 
Options Market Maker message traffic and Equity Market Maker message 
traffic, the Maximum Industry Member CAT Fee, the Maximum Industry 
Member CAT Fee Re-Allocation and the Minimum Industry Member CAT Fee 
Re-Allocation). Each Industry Member's message traffic would be 
calculated using CAT Data from the prior quarter. Industry Members will 
be required to commence paying the Period 4 CAT Fee in the second 
quarter of 2023, based on data from the first quarter of 2023.
    To implement the Period 4 CAT Fee, the Exchange proposes to add 
proposed paragraph (d) to the ``Consolidated Audit Trail Funding Fees'' 
section of its fee schedule. Proposed paragraph (d) would state that 
``each Industry Member shall pay a Period 4 CAT Fee in the amount of 
the greater of the following each quarter for four quarters commencing 
in the second quarter of 2023: (1) Minimum Industry Member CAT Fee 
(plus any applicable Maximum Industry Member CAT Fee Re-Allocation); or 
(2) the amount calculated by multiplying the percentage of the Industry 
Member's message traffic of the total Industry Member message traffic 
based on the prior quarter's message traffic by 1/4th of 75% of the 
Period 4 CAT Costs (subject to applicable discounts for Options Market 
Maker message traffic and Equity Market Maker message traffic, the 
Maximum Industry Member CAT Fee, the Maximum Industry Member CAT Fee 
Re-Allocation and the Minimum Industry Member CAT Fee Re-Allocation).''
    The Exchange understands that the Operating Committee will announce 
via a CAT alert after the end of 2022 the Total CAT Costs for 2022 to 
be used in calculating the quarterly Period 4 CAT Fees. Such Total CAT 
Costs will be set forth in the year-end financial statements of the 
Consolidated Audit Trail, LLC. As noted above, such financial 
statements are required to be prepared in accordance with the 
requirements set forth in Section 9.2 of the CAT NMS Plan.
    The Exchange indicates that the proposed Period 4 CAT Fee seeks to 
recover costs that will be related to Post-Amendment Expenses incurred 
during Period 4. Period 4 is expected to begin on January 1, 2022 and 
conclude on December 30, 2022, the date of Full Implementation of CAT 
NMS Plan Requirements. As discussed above, the Period 4 CAT Costs to be 
recovered via the Period 4 CAT Fee would include fees, costs and 
expenses incurred by or for the Company in connection with the 
development, implementation and operation of the CAT during the period 
from January 1, 2022 through December 30, 2022. The collection of the 
full amount of the Period 4 CAT Fee will depend upon achievement of 
Full Implementation of CAT NMS Plan Requirements by December 30, 2022; 
if not, the amount of the Period 4 CAT Fee that may be collected from 
the Industry Members will depend upon the fee limitations set forth in 
Section 11.6(a)(ii) of the CAT NMS Plan. Accordingly, proposed 
paragraph (e) of the ``Consolidated Audit Trail Funding Fees'' section 
of its fee schedule would state that Industry Members will be required 
to pay the Period 4 CAT Fee ``[s]ubject to the requirements of Section 
11.6 of the CAT NMS Plan.''
    The following chart summarizes the imposition of the Period 4 CAT 
Fee:
---------------------------------------------------------------------------

    \41\ The Period 4 CAT Costs will be the total actual costs 
incurred for the CAT for 2022 as set forth in the 2022 financial 
statements for the Company.

----------------------------------------------------------------------------------------------------------------
                                                             CAT data used for
         Quarterly CAT fee            Quarterly industry      message traffic              Payment due
                                      member allocation         calculation
----------------------------------------------------------------------------------------------------------------
Quarterly CAT Fee #1..............  1/4th of 75% of the    CAT Data from first   2nd quarter of 2023.
                                     Period 4 CAT Costs     quarter of 2023.
                                     \41\.
Quarterly CAT Fee #2..............  1/4th of 75% of the    CAT Data from second  3rd quarter of 2023.
                                     Period 4 CAT Costs.    quarter of 2023.
Quarterly CAT Fee #3..............  1/4th of 75% of the    CAT Data from third   4th quarter of 2023.
                                     Period 4 CAT Costs.    quarter of 2023.
Quarterly CAT Fee #4..............  1/4th of 75% of the    CAT Data from fourth  1st quarter of 2024.
                                     Period 4 CAT Costs.    quarter of 2023.
----------------------------------------------------------------------------------------------------------------

(D) Quarterly CAT Fee--Beginning 2023
    As provided in the Proposed CAT Fee Plan Amendment, to recover the 
costs of the CAT going forward beginning in 2023, the Operating 
Committee determined to charge Industry Members an ongoing quarterly 
CAT fee calculated based on the allocation of Total CAT Costs pursuant 
to the CAT Funding Model (``Quarterly CAT Fee'').\42\ The Operating 
Committee will use the costs set forth in the annual operating budget 
as the Total CAT Costs in the calculation of the Quarterly CAT Fee. 
Specifically, the Total CAT Costs budgeted for the upcoming year for 
the Company required pursuant to Section 11.1(a) of the CAT NMS Plan. 
Using these estimated Total CAT Costs, the Operating Committee will 
calculate the Quarterly CAT Fee owed by each Industry Member in 
accordance with the CAT Funding Model. As provided in the Proposed CAT 
Fee Plan Amendment, the Operating Committee proposes to seek to recover 
the budgeted Total CAT Costs over the course of the year. Each quarter, 
each Industry Member will pay the greater of the minimum fee of $125 or 
the Industry Member's fee calculated based on message traffic.\43\ The 
message traffic fee would be calculated by multiplying the

[[Page 24987]]

percentage of the Industry Member's message traffic of the total 
Industry Member message traffic by 1/4th of 75% of the budgeted Total 
CAT Costs for the year (subject to applicable discounts for Options 
Market Maker message traffic and Equity Market Maker message traffic, 
the Maximum Industry Member CAT Fee, the Maximum Industry Member CAT 
Fee Re-Allocation and the Minimum Industry Member CAT Fee Re-
Allocation). Each Industry Member's message traffic would be calculated 
using data from the prior calendar quarter. The Exchange proposes to 
commence charging this CAT fee in the second quarter of 2023, based on 
CAT Data from the first quarter of 2023.
---------------------------------------------------------------------------

    \42\ See Proposed CAT Fee Plan Amendment at 21067-68.
    \43\ To the extent that any two or more of the four categories 
of Industry Member CAT fees (i.e., the Historical CAT Assessment, 
Period 3 CAT Fee, Period 4 CAT Fee and the Quarterly CAT Fee) are 
due during the same quarter, any Industry Member obligated to pay 
one or more categories of fees is required to pay each category of 
fee for that quarter. For example, if an Industry Member would be 
subject to the Minimum Industry Member CAT Fee for the Period 4 CAT 
Fee and the Minimum Industry Member CAT Fee for the Quarterly CAT 
Fee during the same quarter, the Industry Member would be required 
to pay two minimum $125 fees that quarter for a total of $250. As 
another example, suppose that an Industry Member owed a CAT fee 
(other than the minimum fee of $125) for both the Historical CAT 
Assessment and the Period 3 CAT Fee, the Industry Member would be 
required to pay both fees that quarter. See Proposed CAT Fee Plan 
Amendment at 21067.
---------------------------------------------------------------------------

    To implement the Quarterly CAT Fee, the Exchange proposes to add 
proposed paragraph (a) to the ``Consolidated Audit Trail Funding Fees'' 
section of its fee schedule. Proposed paragraph (a) would state that 
``[e]ach Industry Member shall pay a Quarterly CAT Fee in the amount of 
the greater of the following each quarter commencing in the second 
quarter of 2023: (1) Minimum Industry Member CAT Fee (plus any 
applicable Maximum Industry Member CAT Fee Re-Allocation); or (2) the 
amount calculated by multiplying the percentage of the Industry 
Member's message traffic of the total Industry Member message traffic 
based on the prior quarter's message traffic by 1/4th of 75% of the 
budgeted Total CAT Costs for the relevant year (subject to applicable 
discounts for Options Market Maker message traffic and Equity Market 
Maker message traffic, the Maximum Industry Member CAT Fee, the Maximum 
Industry Member CAT Fee Re-Allocation and the Minimum Industry Member 
CAT Fee Re-Allocation).''
    The Exchange understands the Operating Committee will announce at 
the beginning of the relevant year via a CAT alert the budgeted Total 
CAT Costs to be used in calculating the Quarterly CAT Fees for that 
year. The budgeted Total CAT Costs will be the costs set forth in the 
annual operating budget for the Company required pursuant to Section 
11.1(a) of the CAT NMS Plan. As discussed above, CAT costs would 
include, but not be limited to, Plan Processor costs, insurance costs, 
third-party support costs and an operational reserve. As required by 
Section 11.1(c) of the CAT NMS Plan, any surpluses collected will be 
treated as an operational reserve to offset future fees and will not be 
distributed to the Participants as profits.\44\ In addition, to address 
potential changes in the budget during the year, the total budgeted 
costs for the CAT for the relevant year may be adjusted on a quarterly 
basis as the Operating Committee reasonably deems appropriate for the 
prudent operation of the Company. To the extent that the Operating 
Committee adjusts the total budgeted costs for the CAT for the relevant 
year during its quarterly budget review, the adjusted total budgeted 
costs for the CAT will be used in calculating the remaining quarterly 
CAT fees for that year.
---------------------------------------------------------------------------

    \44\ CAT NMS Plan Approval Order at 84792.
---------------------------------------------------------------------------

    The following chart summarizes the imposition of the Quarterly CAT 
Fee each year commencing in 2023 and continuing each year thereafter:

----------------------------------------------------------------------------------------------------------------
                                                                    CAT data used for
           Quarterly CAT fee               Quarterly industry        message traffic            Payment due
                                           member allocation           calculation
----------------------------------------------------------------------------------------------------------------
Quarterly CAT Fee #1..................  1/4th of 75% of the      CAT Data from first      2nd quarter of the
                                         budgeted annual CAT      quarter of the           relevant year
                                         costs for the relevant   relevant year.
                                         year.
Quarterly CAT Fee #2..................  1/4th of 75% of the      CAT Data from second     3rd quarter of the
                                         budgeted annual CAT      quarter of the           relevant year
                                         costs for the relevant   relevant year.
                                         year.
Quarterly CAT Fee #3..................  1/4th of 75% of the      CAT Data from third      4th quarter of the
                                         budgeted annual CAT      quarter of the           relevant year
                                         costs for the relevant   relevant year.
                                         year.
Quarterly CAT Fee #4..................  1/4th of 75% of the      CAT Data from fourth     1st quarter of year
                                         budgeted annual CAT      quarter of the           following the
                                         costs for the relevant   relevant year.           relevant year
                                         year.
----------------------------------------------------------------------------------------------------------------

(3) Time and Manner of Payment
    The Exchange proposes to add paragraph (e) to the ``Consolidated 
Audit Trail Funding Fees'' section of its fee schedule to describe the 
time and manner of the payment of the Industry Member CAT fees as 
provided in the Proposed CAT Fee Plan Amendment.\45\ Proposed paragraph 
(e)(1) would state that ``Consolidated Audit Trail, LLC will provide 
each Industry Member with an invoice setting forth the Industry 
Member's Historical CAT Assessment, Period 3 CAT Fee, Period 4 CAT Fee 
and/or Quarterly CAT Fee (as applicable) (collectively, ``CAT Fees'') 
for each payment period.'' Proposed paragraph (e)(2) would state that 
``Consolidated Audit Trail, LLC will provide each Industry Member with 
one invoice each payment period for its CAT Fees as determined pursuant 
to paragraph (a)-(d) above, regardless of whether the Industry Member 
is a member of multiple self-regulatory organizations.'' Proposed 
paragraph (e)(3) would state that ``[e]ach Industry Member will pay its 
CAT Fees to the Consolidated Audit Trail, LLC via the centralized 
system for the collection of CAT Fees established by the Consolidated 
Audit Trail, LLC in the manner prescribed by the Consolidated Audit 
Trail, LLC.'' Finally, proposed paragraph (e)(4) would require that 
Industry Members pay their CAT Fees within thirty days after receipt of 
an invoice or other notice indicating payment is due (unless a longer 
payment period is otherwise indicated). If an Industry Member fails to 
pay any such fee when due, such Industry Member shall pay interest on 
the outstanding balance from such due date until such fee is paid at a 
per annum rate equal to the lesser of (i) the Prime Rate plus 300 basis 
points, or (ii) the maximum rate permitted by applicable law.\46\
---------------------------------------------------------------------------

    \45\ See Proposed CAT Fee Plan Amendment at 21068.
    \46\ CAT Reporters will be responsible for each quarterly fee in 
which they are a CAT Reporter. If a CAT Reporter ceases to the meet 
the definition of a CAT Reporter during a quarter, the CAT Reporter 
will still be responsible for CAT fees attributable to its message 
traffic (or, the minimum fee in the alternative) during that 
quarter. See Proposed CAT Fee Plan Amendment at 21068.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of the Exchange Act. The Exchange believes that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\47\ 
which requires, among other things, that the Exchange's rules must be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest, and not designed to permit 
unfair discrimination between customers, issuers, brokers and dealers. 
The Exchange also believes that the proposed rule change is consistent 
with the provisions of Section 6(b)(4) of the

[[Page 24988]]

Act,\48\ because it provides for the equitable allocation of reasonable 
dues, fees and other charges among members and issuers and other 
persons using its facilities. The Exchange further believes that the 
proposed rule change is consistent with Section 6(b)(8) of the Act \49\ 
which requires that the Exchange's rules not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purpose of the Exchange Act.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78f(b)(6).
    \48\ 15 U.S.C. 78f(b)(4).
    \49\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Section 11.1(b) of the CAT NMS Plan states that ``[t]he 
Participants shall file with the SEC under Section 19(b) of the 
Exchange Act any such fees on Industry Members that the Operating 
Committee approves.'' Per Section 11.1(b) of the CAT NMS Plan, the 
Exchange has filed this proposed rule change to implement the Industry 
Member CAT fees included in the CAT Funding Model approved by the 
Operating Committee. The Exchange believes that this proposal is 
consistent with the Exchange Act because it is consistent with, and 
implements, the CAT Funding Model, and is designed to assist the 
Exchange and its Industry Members in meeting regulatory obligations 
pursuant to the CAT NMS Plan. In approving the CAT NMS Plan, the SEC 
noted that the Plan ``is necessary and appropriate in the public 
interest, for the protection of investors and the maintenance of fair 
and orderly markets, to remove impediments to, and perfect the 
mechanism of a national market system, or is otherwise in furtherance 
of the purposes of the Act.'' \50\ To the extent that this proposal 
implements the Plan, and applies specific requirements to Industry 
Members, the Exchange believes that this proposal furthers the 
objectives of the Plan, as identified by the SEC, and is therefore 
consistent with the Exchange Act.
---------------------------------------------------------------------------

    \50\ CAT NMS Plan Approval Order at 84696.
---------------------------------------------------------------------------

    The Exchange further notes that, as provided in the Proposed CAT 
Fee Plan Amendment, the Operating Committee determined that the 
proposed Industry Member CAT fees comply with the requirements of the 
Exchange Act and the CAT NMS Plan.\51\ The Operating Committee 
determined that the Industry Member CAT fees provide for the 
``equitable allocation of reasonable dues, fees, and other charges 
among its members and issuers and other persons using its facilities 
necessary or appropriate in furtherance of the purposes of this 
chapter,'' \52\ as required by the Exchange Act. The Operating 
Committee determined that the CAT fees equitably allocate CAT costs 
between Participants and Industry Members, and among Industry Members, 
as discussed in detailed [sic] above. For the reasons discussed above, 
the Operating Committee determined that the 75%-25% allocation between 
Industry Members and Participants in the CAT Funding Model as well as 
the use of message traffic for allocating costs among Industry Members 
provide for an equitable allocation of CAT costs among CAT Reporters. 
In addition, as discussed above, the Operating Committee determined 
that the imposition of minimum and maximum fees and market maker 
discounts would operate to provide for an equitable allocation of CAT 
costs among Industry Members.
---------------------------------------------------------------------------

    \51\ See Proposed CAT Fee Plan Amendment at 21068-70.
    \52\ Sections 6(b)(4) and 15A(b)(5) of the Exchange Act.
---------------------------------------------------------------------------

    As further provided in the Proposed CAT Fee Plan Amendment, the 
Operating Committee also determined that the CAT Funding Model is ``not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers,'' \53\ as required by the Exchange Act, as the CAT 
Funding Model does not unfairly discriminate between Industry Members 
and Participants, or among Industry Members. In making this 
determination, the Operating Committee noted that all Industry Members 
are grouped together for the purpose of determining CAT fees, and 
Industry Members with similar levels of activity would pay similar 
fees. For example, Industry Members with higher levels of message 
traffic would pay higher fees, and those with lower levels of message 
traffic would pay lower fees. With the elimination of tiers in the 
Original Funding Model, fees for Industry Members are directly related 
to their message traffic. With tiers, the relationship between message 
traffic and the CAT fee would not have been as direct.
---------------------------------------------------------------------------

    \53\ Sections 6(b)(5) and 15A(b)(6) of the Exchange Act.
---------------------------------------------------------------------------

    In addition, as discussed in the Proposed CAT Fee Plan Amendment, 
where the method of fee calculation may potentially affect certain 
groups of CAT Reporters adversely, the Operating Committee sought to 
limit such adverse effects. For example, the Operating Committee 
proposed market maker discounts to address the high levels of message 
traffic generally exhibited by market makers. As discussed above, the 
SEC has recognized repeatedly that such favorable treatment for market 
makers in other contexts was not unfairly discriminatory or a burden on 
competition in light of its positive effects on market quality, nor was 
it considered to involve an inequitable allocation of fees among 
members.
    As also provided in the Proposed CAT Fee Plan Amendment, the 
Operating Committee also proposed the Maximum Industry Member CAT Fee 
to address the potential for significant fees based on outsized message 
traffic for certain Industry Members. The Maximum Industry Member CAT 
Fee would serve as a method to institute a cap on fees to fairly 
allocate costs to Industry Members. Such a fee would prevent Industry 
Members from paying significantly larger CAT fees than Participant 
complexes.
    The Proposed CAT Fee Plan Amendment notes that Operating Committee 
also determined that the proposed Industry Member CAT fees would 
promote just and equitable principles of trade, and, in general, 
protect investors and the public interest, as the fees would be 
transparent and relate specifically to CAT activity. The Operating 
Committee also determined that the proposed fees were reasonable 
because they would provide ease of calculation, ease of billing and 
other administrative functions. Such factors are crucial to estimating 
a reliable revenue stream for the Company.

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

    Section 6(b)(8) of the Act \54\ requires that the Exchange's rules 
not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purpose of the Exchange Act. The 
Exchange does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange notes that the 
proposed rule change implements provisions of the CAT NMS Plan that are 
subject to approval by the Commission and is designed to assist the 
Exchange in meeting its regulatory obligations pursuant to the Plan. 
The Exchange also notes that the proposed rule changes will apply 
equally to all Industry Members, including its GEMX members. In 
addition, all national securities exchanges and FINRA are proposing a 
similar proposed fee change to implement the requirements of the CAT 
NMS Plan. Therefore, this is not a competitive fee filing, and, 
therefore, it does not raise competition issues between and among the 
exchanges and FINRA.
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    \54\ 15 U.S.C. 78f(b)(8).

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[[Page 24989]]

    Moreover, the Exchange notes that, as discussed in the Proposed CAT 
Fee Plan Amendment, the Operating Committee determined that the 
proposed fees do not impose an unnecessary or inappropriate burden on 
competition as they fairly and equitably allocate costs among CAT 
Reporters.\55\ The Operating Committee determined that the cost 
allocation between Participants and Industry Members recognizes the 
greater number of Industry Members as compared to the Participants and 
the greater collective revenue of Industry Members as compared to 
Participants. In addition, cost allocations among Industry Members 
based on message traffic fairly and equitably distribute CAT costs. 
Furthermore, the market maker discounts and the Maximum Industry Member 
CAT Fee address the potential for burdens on market makers and Industry 
Members with outsized message traffic potentially resulting from the 
proposed fee calculations. Moreover, the Operating Committee determined 
that the Minimum Industry Member CAT Fee would not act as a barrier to 
entry for smaller Industry Member CAT Reporters.
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    \55\ See Proposed CAT Fee Plan Amendment at 21070.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\56\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is: (i) Necessary or appropriate in the public 
interest; (ii) for the protection of investors; or (iii) otherwise in 
furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \56\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-GEMX-2021-03 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-GEMX-2021-03. 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 rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. 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 SR-GEMX-2021-03su>10 and should be 
submitted on or before June 1, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\57\
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    \57\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09784 Filed 5-7-21; 8:45 am]
BILLING CODE 8011-01-P