82_FR_23536 82 FR 23439 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Transaction Fees at Rule 7004 and Chapter XV, Section 14

82 FR 23439 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Transaction Fees at Rule 7004 and Chapter XV, Section 14

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 97 (May 22, 2017)

Page Range23439-23457
FR Document2017-10300

Federal Register, Volume 82 Issue 97 (Monday, May 22, 2017)
[Federal Register Volume 82, Number 97 (Monday, May 22, 2017)]
[Notices]
[Pages 23439-23457]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-10300]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80696; File No. SR-NASDAQ-2017-046]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchange's Transaction Fees at Rule 7004 and Chapter XV, 
Section 14

May 16, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on May 2, 2017, The NASDAQ Stock Market LLC 
(``Nasdaq'' 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 amend the Exchange's fees at Rule 7004 and 
Chapter XV, Section 14 to adopt a fee schedule to establish the fees 
for Industry Members related to the National Market System Plan 
Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or 
``Plan'').
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to adopt a fee schedule 
to establish the fees for Industry Members related to the CAT NMS Plan.
    Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA 
Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2 
Options Exchange, Incorporated, Chicago Board Options Exchange, 
Incorporated, Chicago Stock Exchange, Inc., Financial Industry 
Regulatory Authority, Inc. (``FINRA''), Investors' Exchange LLC, Miami 
International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, 
Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC,\3\

[[Page 23440]]

NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange 
LLC, NYSE MKT LLC, NYSE Arca, Inc. and NYSE National, Inc.\4\ 
(collectively, the ``Participants'') filed with the Commission, 
pursuant to Section 11A of the Exchange Act \5\ and Rule 608 of 
Regulation NMS thereunder,\6\ the CAT NMS Plan.\7\ The Participants 
filed the Plan to comply with Rule 613 of Regulation NMS under the 
Exchange Act. The Plan was published for comment in the Federal 
Register on May 17, 2016,\8\ and approved by the Commission, as 
modified, on November 15, 2016.\9\ The Plan is designed to create, 
implement and maintain a consolidated audit trail (``CAT'') that would 
capture customer and order event information for orders in NMS 
Securities and OTC Equity Securities, across all markets, from the time 
of order inception through routing, cancellation, modification, or 
execution in a single consolidated data source. The Plan accomplishes 
this by creating CAT NMS, LLC (the ``Company''), of which each 
Participant is a member, to operate the CAT.\10\ Under the CAT NMS 
Plan, the Operating Committee of the 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 (``CAT Fees'').\11\ The Participants are required to file 
with the SEC under Section 19(b) of the Exchange Act any such CAT Fees 
applicable to Industry Members that the Operating Committee 
approves.\12\ Accordingly, Nasdaq submits this fee filing to propose 
the Consolidated Audit Trail Funding Fees, which will require Industry 
Members that are SRO members to pay the CAT Fees determined by the 
Operating Committee.
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    \3\ ISE Gemini, LLC, ISE Mercury, LLC and International 
Securities Exchange, LLC have been renamed Nasdaq GEMX, LLC, Nasdaq 
MRX, LLC, and Nasdaq ISE, LLC, respectively. See Securities Exchange 
Act Release No. 80248 (March 15, 2017), 82 FR 14547 (March 21, 
2017); Securities Exchange Act Release No. 80326 (March 29, 2017), 
82 FR 16460 (April 4, 2017); and Securities Exchange Act Release No. 
80325 (March 29, 2017), 82 FR 16445 (April 4, 2017).
    \4\ National Stock Exchange, Inc. has been renamed NYSE 
National, Inc. See Securities Exchange Act Release No. 79902 (Jan. 
30, 2017), 82 FR 9258 (February 3, 2017).
    \5\ 15 U.S.C. 78k-1.
    \6\ 17 CFR 242.608.
    \7\ See Letter from the Participants to Brent J. Fields, 
Secretary, Commission, dated September 30, 2014; and Letter from 
Participants to Brent J. Fields, Secretary, Commission, dated 
February 27, 2015. On December 24, 2015, the Participants submitted 
an amendment to the CAT NMS Plan. See Letter from Participants to 
Brent J. Fields, Secretary, Commission, dated December 23, 2015.
    \8\ Securities Exchange Act Release No. 77724 (April 27, 2016), 
81 FR 30614 (May 17, 2016).
    \9\ Securities Exchange Act Release No. 79318 (November 15, 
2016), 81 FR 84696 (November 23, 2016) (``Approval Order'').
    \10\ The Plan also serves as the limited liability company 
agreement for the Company.
    \11\ Section 11.1(b) of the CAT NMS Plan.
    \12\ Id.
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(1) Executive Summary
    The following provides an executive summary of the CAT funding 
model approved by the Operating Committee, as well as Industry Members' 
rights and 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.
(A) CAT Funding Model
     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 for the calculation of 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. (See Section 
3(a)(2)(E) [sic] below \13\)
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    \13\ The Commission notes that references to Sections 3(a)(2) 
and 3(a)(3) in this Executive Summary should be instead to Sections 
II.A.1.(2) and II.A.1.(3), respectively.
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     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 3(a)(2) 
[sic] below)
     Industry Member Fees. Each Industry Member (other than 
Execution Venue ATSs) will be placed into one of nine 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 and quotes provided by each exchange and 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. (See Section 3(a)(2)(B) [sic] below)
     Execution Venue Fees. Each Equity Execution Venue will be 
placed in one of two 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. 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 
3(a)(2)(C) [sic] 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 75 percent of Execution Venue costs recovered to Equity 
Execution Venues and 25 percent to Options Execution Venues. (See 
Section 3(a)(2)(D) [sic] below)
     Comparability of Fees. The CAT funding model requires that 
the CAT 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 Venues 
and/or Industry Members). (See Section 3(a)(2)(F) [sic] below)
(B) CAT Fees for Industry Members
     Fee Schedule. The quarterly CAT Fees for each tier for 
Industry Members are set forth in the two fee schedules in the 
Consolidated Audit Trail Funding Fees, one for Equity ATSs and one for

[[Page 23441]]

Industry Members other than Equity ATSs. (See Section 3(a)(3)(B) [sic] 
below)
     Quarterly Invoices. Industry Members will be billed 
quarterly for CAT Fees, with the invoices payable within 30 days. The 
quarterly invoices will identify within which tier the Industry Member 
falls. (See Section 3(a)(3)(C) [sic] below)
     Centralized Payment. Each Industry Member will receive 
from the Company one invoice for its applicable CAT Fees, not separate 
invoices from each Participant of which it is a member. The Industry 
Members will pay its CAT Fees to the Company via the centralized system 
for the collection of CAT Fees established by the Operating Committee. 
(See Section 3(a)(3)(C) [sic] below)
     Billing Commencement. Industry Members will begin to 
receive invoices for CAT Fees as promptly as possible following the 
establishment of a billing mechanism. Nasdaq will issue an information 
circular (``Circular'') to its members when the billing mechanism is 
established, specifying the date when such invoicing of Industry 
Members will commence. (See Section 3(a)(2)(G) [sic] 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. As set forth in Article XI 
of the CAT NMS Plan, the CAT NMS Plan requires 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'' \14\ and ``reflects a reasonable exercise of the 
Participants' funding authority to recover the Participants' costs 
related to the CAT.'' \15\
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    \14\ Approval Order at 84796.
    \15\ Id. at 84794.
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    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.'' \16\ The Commission further noted 
the following:
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    \16\ Id. at 84795.

    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 their 
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.\17\
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    \17\ Id. at 84794.

    Accordingly, the funding model imposes fees on both Participants 
and Industry Members.
    In addition, as discussed in Appendix C of the CAT NMS Plan, the 
Operating Committee considered the advantages and disadvantages of a 
variety of alternative funding and cost allocation models before 
selecting the proposed model.\18\ 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. First, 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.\19\ 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. Moreover, 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 be may be easier to implement.'' \20\
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    \18\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
    \19\ In choosing a tiered fee structure, the SROs concluded that 
the variety of benefits offered by a tiered fee structure, discussed 
above, outweighed the fact that Industry Members in any particular 
tier would pay different rates per message traffic order event 
(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.
    \20\ Approval Order at 84796.
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    In addition, multiple reviews of current broker-dealer order and 
trading data submitted under existing reporting requirements showed a 
wide range in activity among broker-dealers, 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 Reporters and furthers the goal 
of lessening the impact on smaller firms.\21\ The self-regulatory 
organizations 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 the 
relative impact of CAT Reporters on the CAT System.
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    \21\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
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    Accordingly, the CAT NMS Plan contemplates that costs will be 
allocated across the CAT Reporters on a tiered basis to allocate costs 
to those CAT Reporters that contribute more to the costs of creating, 
implementing and maintaining the CAT.\22\ 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 therefore 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.\23\ Correspondingly, Execution Venues with the highest market 
share will be in the top tier, and therefore will be charged a higher 
fee. Execution Venues with a lower market share will be in the lower 
tier and will be assessed a smaller fee for the CAT.\24\
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    \22\ Approval Order at 85005.
    \23\ Id.
    \24\ Id.************************
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    The Commission also noted in approving the CAT NMS Plan that 
``[t]he Participants have offered a credible justification for using 
different criteria to charge Execution Venues (market share) and 
Industry Members (message traffic)'' \25\ in the CAT funding model. 
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

[[Page 23442]]

significant cost drivers for the CAT.\26\ 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.\27\
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    \25\ Id. at 84796.
    \26\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85005.
    \27\ Section 11.3(b) of the CAT NMS Plan.
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    The CAT NMS Plan provides that the Operating Committee will use 
different criteria to establish fees for Execution Venues and non-
Execution Venues due to the fundamental differences between the two 
types of entities. In particular, the CAT NMS Plan provides that fees 
charged to CAT Reporters that are Execution Venues will be based on the 
level of market share and that costs charged to Industry Members (other 
than Execution Venue ATSs) will be based upon message traffic.\28\ 
Because most Participant message traffic consists of quotations, and 
Participants usually disseminate quotations in all instruments they 
trade, regardless of execution volume, Execution Venues that are 
Participants generally disseminate similar amounts of message traffic. 
Accordingly, basing fees for Execution Venues on message traffic would 
not provide the same degree of differentiation among Execution Venues 
that it does among Industry Members (other than Execution Venue ATSs). 
In contrast, execution volume more accurately delineates the different 
levels of trading activity of Execution Venues.\29\
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    \28\ Section 11.2(c) of the CAT NMS Plan.
    \29\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85005.
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    The CAT NMS Plan's funding model also is structured to avoid a 
``reduction in market quality.'' \30\ The tiered, fixed fee funding 
model is designed to limit the disincentives to providing liquidity to 
the market. For example, the Participants expect that a firm that had 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 were 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.'' \31\
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    \30\ Section 11.2(e) of the CAT NMS Plan.
    \31\ Approval Order at 84796.
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    The CAT NMS Plan is structured to avoid potential conflicts raised 
by the Operating Committee determining fees applicable to its own 
members--the Participants. First, the Company will be operated on a 
``break-even'' 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.\32\ 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 
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.'' \33\ 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.'' \34\
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    \32\ Id. at 84792.
    \33\ 26 U.S.C. 501(c)(6).
    \34\ Approval Order at 84793.
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    Finally, by adopting a CAT-specific fee, the Participants 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. Nasdaq notes that the complete funding 
model is described below, including those fees that are to be paid by 
the Participants. The proposed Consolidated Audit Trail Funding Fees, 
however, do not apply to the Participants; the proposed Consolidated 
Audit Trail Funding Fees only apply to Industry Members. The CAT fees 
for Participants will be imposed separately by the Operating Committee 
pursuant to the CAT NMS Plan.
(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

[[Page 23443]]

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 nine tiers results 
in the fairest allocation of fees, best distinguishing between Industry 
Members with differing levels of message traffic. Thus, each such 
Industry Member will be placed into one of nine tiers of fixed fees, 
based on ``message traffic'' for a defined period (as discussed below). 
A nine tier structure was selected to provide the widest 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 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 traffic. Based on this, the Operating Committee determined 
that nine tiers would best group firms with similar levels of message 
traffic, charging those firms with higher impact on the CAT more, while 
lowering the burden of Industry Members that have less CAT-related 
activity.
    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 allow the funding model to ensure that the total 
CAT fees collected recover the intended 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 tiers that 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.
    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 stability and 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 nine Industry 
Member tiers across the monthly average of total equity and equity 
options orders, cancels and quotes in Q1 2016 and identifies relative 
gaps across varying levels of Industry Member message traffic 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 directly 
driven, not by fixed message traffic thresholds, but rather by fixed 
percentages of Industry Members across tiers to account for fluctuating 
levels of message traffic across time and to provide for the financial 
stability of 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 3(a)(1)(H) 
[sic].

[[Page 23444]]

[GRAPHIC] [TIFF OMITTED] TN22MY17.022


------------------------------------------------------------------------
                                                        Monthly average
                                                        message traffic
                                                          per industry
                 Industry Member Tier                   member (Orders,
                                                           Quotes and
                                                            Cancels)
------------------------------------------------------------------------
Tier 1...............................................    >10,000,000,000
Tier 2...............................................     >1,000,000,000
Tier 3...............................................       >100,000,000
Tier 4...............................................         >2,500,000
Tier 5...............................................           >200,000
Tier 6...............................................            >50,000
Tier 7...............................................             >5,000
Tier 8...............................................             >1,000
Tier 9...............................................            <=1,000
------------------------------------------------------------------------

    Based on the above analysis, the Operating Committee approved the 
following Industry Member Percentages and Recovery Allocations:

----------------------------------------------------------------------------------------------------------------
                                                                                   Percentage of
                                                                   Percentage of     Industry      Percentage of
                      Industry member tier                           industry         member      total recovery
                                                                      members        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           0.500            8.50            6.38
Tier 2..........................................................           2.500           35.00           26.25
Tier 3..........................................................           2.125           21.25           15.94
Tier 4..........................................................           4.625           15.75           11.81
Tier 5..........................................................           3.625            7.75            5.81
Tier 6..........................................................           4.000            5.25            3.94
Tier 7..........................................................          17.500            4.50            3.38
Tier 8..........................................................          20.125            1.50            1.13
Tier 9..........................................................          45.000            0.50            0.38
                                                                 -----------------------------------------------
    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 and quotes provided by each exchange and FINRA 
over the previous three

[[Page 23445]]

months.\35\ Prior to the start of CAT reporting, orders would be 
comprised of the total number of equity and equity options orders 
received and originated 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 order routes and executions 
originated by a member of FINRA, and excluding order rejects and 
implied orders.\36\ 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 three-month period, excluding order modifications (e.g., 
order updates, order splits, partial cancels). 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.
---------------------------------------------------------------------------

    \35\ The 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 Release No. 77265 (Mar. 1, 2017 [sic], 81 FR 11856 (March 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.
    \36\ Consequently, 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.
---------------------------------------------------------------------------

    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.\37\
---------------------------------------------------------------------------

    \37\ If an Industry Member (other than an Execution Venue ATS) 
has no orders, cancels or quotes 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.
---------------------------------------------------------------------------

    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).'' 
\38\
---------------------------------------------------------------------------

    \38\ Although 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.
---------------------------------------------------------------------------

    The Participants determined that ATSs should be included within the 
definition of Execution Venue. Given the similarity between the 
activity of exchanges and ATSs, both of which meet the definition of an 
``exchange'' as set forth in the Exchange Act and the fact that the 
similar trading models would have similar anticipated burdens on the 
CAT, the Participants determined that ATSs should be treated in the 
same manner as the exchanges for the purposes of determining the level 
of fees associated with the CAT.\39\
---------------------------------------------------------------------------

    \39\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85005.
---------------------------------------------------------------------------

    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 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 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 two tiers of fixed fees, based on the Execution Venue's NMS Stocks 
and OTC Equity Securities market share. In choosing two tiers, the 
Operating Committee performed an analysis similar to that discussed 
above with regard to the non-Execution Venue Industry Members to 
determine the number of tiers for Equity Execution Venues. The 
Operating Committee determined to establish two tiers for Equity 
Execution Venues, rather than a larger number of tiers as established 
for non-Execution Venue

[[Page 23446]]

Industry Members, because the two tiers were sufficient to distinguish 
between the smaller number of Equity Execution Venues based on market 
share. Furthermore, the incorporation of additional Equity Execution 
Venue tiers would result in significantly higher fees for Tier 1 Equity 
Execution Venues and diminish comparability between Execution Venues 
and Industry Members.
    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 looked at 
historical market share of share volume for execution venues. Equities 
Execution Venue market share of share volume were sourced from market 
statistics made publicly-available by Bats Global Markets, Inc. 
(``Bats''). ATS market share of share volume was sourced from market 
statistics made publicly-available by FINRA. FINRA trading [sic] 
reporting facility (``TRF'') market share of share volume was sourced 
from market statistics made publicly available by Bats. As indicated by 
FINRA, ATSs accounted for 37.80% of the share volume across the TRFs 
during the recent tiering period. A 37.80/62.20 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 TRF market share of share 
volume.
    Based on this, the Operating Committee considered the distribution 
of Execution Venues, and grouped together Execution Venues with similar 
levels of market share of share volume. In doing so, the Participants 
considered that, as previously noted, Execution Venues in many cases 
have similar levels of message traffic due to quoting activity, and 
determined that it was simpler and more appropriate to have fewer, 
rather than more, Execution Venue tiers to distinguish between 
Execution Venues.
    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 recovered 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 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 costs recovered 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, due to the similar levels of impact on the CAT System 
across Execution Venues, there is less variation in CAT Fees between 
the highest and lowest of tiers for Execution Venues. Furthermore, by 
using percentages of Equity Execution Venues and costs recovered per 
tier, the Operating Committee sought to include stability and 
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:

----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of
                                                                      equity       Percentage of   Percentage of
                   Equity execution venue tier                       execution       execution    total recovery
                                                                      venues      venue recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           25.00           26.00            6.50
Tier 2..........................................................           75.00           49.00           12.25
                                                                 -----------------------------------------------
    Total.......................................................             100              75           18.75
----------------------------------------------------------------------------------------------------------------

    The following table exhibits the relative separation of market 
share of share volume between Tier 1 and Tier 2 Equity Execution 
Venues. In reviewing the table, note that while this division was 
referenced as a data point 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. The Equity Execution Venue Percentages and Equity 
Execution Venue Recovery Allocation for each tier will remain fixed 
with each Equity Execution Venue tier to be reassigned periodically, as 
described below in Section 3(a)(1)(I) [sic].

------------------------------------------------------------------------
                                                           Equity market
               Equity execution venue tier                share of share
                                                            volume (%)
------------------------------------------------------------------------
Tier 1..................................................             >=1
Tier 2..................................................              <1
------------------------------------------------------------------------

(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

[[Page 23447]]

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 of tiers as established 
for Industry Members (other than Execution Venue ATSs), 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.
    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 recovered by 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 costs recovered 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 costs recovered per tier, 
the Operating Committee sought to include stability and 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:

----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of
                                                                      options      Percentage of   Percentage of
                  Options execution venue tier                       execution       execution    total recovery
                                                                      venues      venue recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           20.00            5.00
Tier 2..........................................................           25.00            5.00            1.25
                                                                 -----------------------------------------------
    Total.......................................................             100              25            6.25
----------------------------------------------------------------------------------------------------------------

    The following table exhibits the relative separation of market 
share of share volume between Tier 1 and Tier 2 Options Execution 
Venues. In reviewing the table, note that while this division was 
referenced as a data point to help differentiate between Options 
Execution Venue tiers, the proposed funding model is directly driven, 
not by market share thresholds, but rather by fixed percentages of 
Options 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 Options Execution Venues included in the 
measurement period. The Options Execution Venue Percentages and Equity 
Execution Venue Recovery Allocation for each tier will remain fixed 
with each Options Execution Venue tier to be reassigned periodically, 
as described below in Section 3(a)(1)(I) [sic].

------------------------------------------------------------------------
                                                          Options market
              Options execution venue tier                share of share
                                                             volume %
------------------------------------------------------------------------
Tier 1..................................................             >=1
Tier 2..................................................              <1
------------------------------------------------------------------------

(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 
publicly-available 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. Set forth in the Appendix 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. 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

[[Page 23448]]

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 recovered 
from such Industry Members and Execution Venues. 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, keeping in view that comparability should consider affiliations 
among or between CAT Reporters (e.g., firms with multiple Industry 
Members and/or exchange licenses). For example, the cost allocation 
establishes fees for the largest Industry Members (i.e., those Industry 
Members in Tiers 1, 2 and 3) that are comparable to the largest Equity 
Execution Venues and Options Execution Venues (i.e., those Execution 
Venues in Tier 1). In addition, the cost allocation establishes fees 
for Execution Venue complexes that are comparable to those of Industry 
Member complexes. For example, when analyzing alternative allocations, 
other possible allocations led to much higher fees for larger Industry 
Members than for larger Execution Venues or vice versa, and/or led to 
much higher fees for Industry Member complexes than Execution Venue 
complexes or vice versa.
    Furthermore, the allocation of total CAT costs recovered 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 25 
times more Industry Members expected to report to the CAT than 
Execution Venues (e.g., an estimated 1,630 Industry Members versus 70 
Execution Venues as of January 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 75 percent of Execution Venue costs recovered to Equity 
Execution Venues and 25 percent to Options Execution Venues. The 
Operating Committee determined that a 75/25 division between Equity and 
Options Execution Venues maintained elasticity across the funding model 
as well 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, and fees for the smaller Equity Execution Venues that are 
comparable to the smaller Options Execution Venues. 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.\40\
---------------------------------------------------------------------------

    \40\ It is anticipated that CAT-related costs incurred prior to 
November 21, 2016 will be addressed via a separate fee filing.
---------------------------------------------------------------------------

    The Plan Processor costs relate to costs incurred by the Plan 
Processor and consist of the Plan Processor's current estimates of 
average yearly ongoing costs, including development cost, which total 
$37,500,000. This amount is based upon the fees due to the Plan 
Processor pursuant to the 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 historic 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 non-Plan Processor costs 
are estimated insurance costs for the year. Based on discussions with 
potential insurance providers, assuming $2-5 million insurance premium 
on $100 million in coverage, the Company has received an estimate of 
$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 operational reserve, which 
is comprised of three months of ongoing Plan Processor costs 
($9,375,000), third party support costs ($1,300,000) and insurance 
costs ($750,000). The Operating Committee aims to accumulate the 
necessary funds for the establishment of 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 for the replenishment of the operating reserve 
or other changes to total cost during its annual budgeting process. The 
following table summarizes the Plan Processor and non-Plan Processor 
cost components which comprise the total CAT costs of $50,700,000.
---------------------------------------------------------------------------

    \41\ This $5,000,000 represents the gradual accumulation of the 
funds for a target operating reserve of $11,425,000.

------------------------------------------------------------------------
           Cost category               Cost component         Amount
------------------------------------------------------------------------
Plan Processor....................  Operational Costs...     $37,500,000
                                    Third Party Support        5,200,000
                                     Costs.
Non-Plan Processor................  Operational Reserve.  \41\ 5,000,000
                                    Insurance Cost......       3,000,000

[[Page 23449]]

 
    Estimated Total...............  ....................      50,700,000
------------------------------------------------------------------------

    Based on the estimated costs and the calculations for the funding 
model described above, the Operating Committee determined to impose the 
following fees: \42\
---------------------------------------------------------------------------

    \42\ Note that all monthly, quarterly and annual CAT Fees have 
been rounded to the nearest dollar.
---------------------------------------------------------------------------

    For Industry Members (other than Execution Venue ATSs):
---------------------------------------------------------------------------

    \43\ This column represents the approximate total CAT Fees paid 
each year by each Industry Member (other than Execution Venue ATSs) 
(i.e., ``CAT Fees Paid Annually'' = ``Monthly CAT Fee'' x 12 
months).

----------------------------------------------------------------------------------------------------------------
                                                                    Monthly CAT    Quarterly CAT   CAT Fees paid
                              Tier                                      fee             fee        annually \43\
----------------------------------------------------------------------------------------------------------------
1...............................................................         $33,668        $101,004        $404,016
2...............................................................          27,051          81,153         324,612
3...............................................................          19,239          57,717         230,868
4...............................................................           6,655          19,965          79,860
5...............................................................           4,163          12,489          49,956
6...............................................................           2,560           7,680          30,720
7...............................................................             501           1,503           6,012
8...............................................................             145             435           1,740
9...............................................................              22              66             264
----------------------------------------------------------------------------------------------------------------

    For Execution Venues for NMS Stocks and OTC Equity Securities:
---------------------------------------------------------------------------

    \44\ This column represents the approximate total CAT Fees paid 
each year by each Execution Venue for NMS Stocks and OTC Equity 
Securities (i.e., ``CAT Fees Paid Annually'' = ``Monthly CAT Fee'' x 
12 months).

----------------------------------------------------------------------------------------------------------------
                                                                    Monthly CAT    Quarterly CAT   CAT Fees Paid
                              Tier                                      Fee             Fee        Annually \44\
----------------------------------------------------------------------------------------------------------------
1...............................................................         $21,125         $63,375        $253,500
2...............................................................          12,940          38,820         155,280
----------------------------------------------------------------------------------------------------------------

    For Execution Venues for Listed Options:
---------------------------------------------------------------------------

    \45\ This column represents the approximate total CAT Fees paid 
each year by each Execution Venue for Listed Options (i.e., ``CAT 
Fees Paid Annually'' = ``Monthly CAT Fee'' x 12 months).

----------------------------------------------------------------------------------------------------------------
                                                                    Monthly CAT    Quarterly CAT   CAT Fees Paid
                              Tier                                      Fee             Fee        Annually \45\
----------------------------------------------------------------------------------------------------------------
1...............................................................         $19,205         $57,615        $230,460
2...............................................................          13,204          39,612         158,448
----------------------------------------------------------------------------------------------------------------

    As noted above, the fees set forth in the tables reflect the 
Operating Committee's decision to ensure comparable fees between 
Execution Venues and Industry Members. The fees of the top tiers for 
Industry Members (other than Execution Venue ATSs) are not identical to 
the top tier for Execution Venues, however, because the Operating 
Committee also determined that the fees for Execution Venue complexes 
should be comparable to those of Industry Member complexes. The 
difference in the fees reflects this decision to recognize 
affiliations.
    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 Reporter fees assumes 53 Equity Execution Venues, 15 Options 
Execution Venues and 1,631 Industry Members (other than Execution Venue 
ATSs) as of January 2017.

                          Calculation of Annual Tier Fees for Industry Members (``IM'')
----------------------------------------------------------------------------------------------------------------
                                                                                   Percentage of
                                                                   Percentage of     industry      Percentage of
                      Industry member tier                           industry         member      total recovery
                                                                      members        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           0.500            8.50            6.38
Tier 2..........................................................           2.500           35.00           26.25

[[Page 23450]]

 
Tier 3..........................................................           2.125           21.25           15.94
Tier 4..........................................................           4.625           15.75           11.81
Tier 5..........................................................           3.625            7.75            5.81
Tier 6..........................................................           4.000            5.25            3.94
Tier 7..........................................................          17.500            4.50            3.38
Tier 8..........................................................          20.125            1.50            1.13
Tier 9..........................................................          45.000            0.50            0.38
                                                                 -----------------------------------------------
    Total.......................................................             100             100              75
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                                                        Estimated number
                 Industry member tier                     of industry
                                                            members
------------------------------------------------------------------------
Tier 1...............................................                  8
Tier 2...............................................                 41
Tier 3...............................................                 35
Tier 4...............................................                 75
Tier 5...............................................                 59
Tier 6...............................................                 65
Tier 7...............................................                285
Tier 8...............................................                328
Tier 9...............................................                735
                                                      ------------------
    Total............................................              1,631
------------------------------------------------------------------------


[[Page 23451]]

[GRAPHIC] [TIFF OMITTED] TN22MY17.023


                      Calculation of Annual Tier Fees for Equity Execution Venues (``EV'')
----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of
                                                                      equity       Percentage of   Percentage of
                   Equity execution venue tier                       execution       execution    total recovery
                                                                      venues      venue recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           25.00           26.00            6.50
Tier 2..........................................................           75.00           49.00           12.25
                                                                 -----------------------------------------------
    Total.......................................................             100              75           18.75
----------------------------------------------------------------------------------------------------------------


[[Page 23452]]


------------------------------------------------------------------------
                                                        Estimated Number
             Equity Execution Venue Tier                   of Equity
                                                        Execution Venues
------------------------------------------------------------------------
Tier 1...............................................                 13
Tier 2...............................................                 40
                                                      ------------------
    Total............................................                 53
------------------------------------------------------------------------

                                                       [GRAPHIC] [TIFF OMITTED] TN22MY17.024
                                                       

                      Calculation of Annual Tier Fees for Options Execution Venues (``EV'')
----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of
                                                                      options      Percentage of   Percentage of
                  Options execution venue tier                       execution       execution    total recovery
                                                                      venues      venue recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           20.00            5.00
Tier 2..........................................................           25.00            5.00            1.25
                                                                 -----------------------------------------------
    Total.......................................................             100              25            6.25
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                                                        Estimated number
             Options execution venue tier                  of options
                                                        execution venues
------------------------------------------------------------------------
Tier 1...............................................                 11
Tier 2...............................................                  4
                                                      ------------------
    Total............................................                 15
------------------------------------------------------------------------

                                                       [GRAPHIC] [TIFF OMITTED] TN22MY17.025
                                                       

----------------------------------------------------------------------------------------------------------------
                                                                     Estimated
                Type                     Industry member tier        number of     CAT fees paid  Total recovery
                                                                      members        annually
----------------------------------------------------------------------------------------------------------------
Industry Members....................  Tier 1....................               8        $404,016      $3,232,128
                                      Tier 2....................              41         324,612      13,309,092
                                      Tier 3....................              35         230,868       8,080,380
                                      Tier 4....................              75          79,860       5,989,500
                                      Tier 5....................              59          49,956       2,947,404
                                      Tier 6....................              65          30,720       1,996,800
                                      Tier 7....................             285           6,012       1,713,420
                                      Tier 8....................             328           1,740         570,720
                                      Tier 9....................             735             264         194,040
                                     ---------------------------------------------------------------------------
    Total...........................  ..........................           1,631  ..............      38,033,484
                                     ---------------------------------------------------------------------------
Equity Execution Venues.............  Tier 1....................              13         253,500       3,295,500

[[Page 23453]]

 
                                      Tier 2....................              40         155,280       6,211,200
                                     ---------------------------------------------------------------------------
    Total...........................  ..........................              53  ..............       9,506,700
                                     ---------------------------------------------------------------------------
Options Execution Venues............  Tier 1....................              11         230,460       2,535,060
                                      Tier 2....................               4         158,448         633,792
                                     ---------------------------------------------------------------------------
    Total...........................  ..........................              15  ..............       3,168,852
                                     ---------------------------------------------------------------------------
        Total.......................  ..........................  ..............  ..............      50,709,036
                                     ---------------------------------------------------------------------------
            Excess \46\.............  ..........................  ..............  ..............           9,036
----------------------------------------------------------------------------------------------------------------

(F) Comparability of Fees
---------------------------------------------------------------------------

    \46\ The amount in excess of the total CAT costs will contribute 
to the gradual accumulation of the target operating reserve of 
$11.425 million.
---------------------------------------------------------------------------

    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 
take account of the affiliations between or among CAT Reporters--that 
is, where affiliated entities may have multiple Industry Member and/or 
Execution Venue licenses, by maintaining relative comparability of fees 
among such affiliations with the most expected CAT-related activity. To 
do this, the Participants identified representative affiliations in the 
largest tier of both Execution Venues and Industry Members and compared 
the aggregate fees that would be paid by such firms.
    While the proposed fees for Tier 1 and Tier 2 Industry Members are 
relatively higher than those of Tier 1 and Tier 2 Execution Venues, 
Execution Venue complex fees are relatively higher than those of 
Industry Member complexes largely due to affiliations between Execution 
Venues. The tables set forth below describe the largest Execution Venue 
and Industry Member complexes and their associated fees: \47\
---------------------------------------------------------------------------

    \47\ Note that the analysis of the complexes was performed on a 
best efforts basis, as all affiliations between the 1631 Industry 
Members may not be included.

                                            Execution Venue Complexes
----------------------------------------------------------------------------------------------------------------
                                               Listing of equity          Listing of options       Total fees by
         Execution venue complex             execution venue tiers       execution venue tier       EV complex
----------------------------------------------------------------------------------------------------------------
Execution Venue Complex 1...............   Tier 1 (x2)......   Tier 1 (x4)......      $1,900,962
                                           Tier 2 (x1)......   Tier 2 (x2)......
Execution Venue Complex 2...............   Tier 1 (x2)......   Tier 1 (x2)......       1,863,801
                                                                       Tier 2 (x1)......
Execution Venue Complex 3...............   Tier 1 (x2)......   Tier 1 (x2)......       1,278,447
                                           Tier 2 (x2)......
----------------------------------------------------------------------------------------------------------------


                                            Industry Member Complexes
----------------------------------------------------------------------------------------------------------------
                                          Listing of industry member                               Total fees by
         Industry member complex                     tiers               Listing of ATS tiers       IM Complex
----------------------------------------------------------------------------------------------------------------
Industry Member Complex 1...............   Tier 1 (x2)......   Tier 2 (x1)......        $963,300
Industry Member Complex 2...............   Tier 1 (x1)......   Tier 2 (x3)......         949,674
                                           Tier 4 (x1)......
Industry Member Complex 3...............   Tier 1 (x1)......   Tier 2 (x1)......         883,888
                                           Tier 2 (x1)......
Industry Member Complex 4...............   Tier 1 (x1)......  N/A.......................         808,472
                                           Tier 2 (x1)......
                                           Tier 4 (x1)......
Industry Member Complex 5...............   Tier 2 (x1)......   Tier 2 (x1)......         796,595
                                           Tier 3 (x1)......
                                           Tier 4 (x1)......
                                           Tier 7 (x1)......
----------------------------------------------------------------------------------------------------------------

(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

[[Page 23454]]

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. For 
example, the Plan Processor has required up-front payments to begin 
building the CAT. In addition, the Company continues to incur 
consultant and legal expenses on an on-going basis to implement the 
CAT. Accordingly, the Operating Committee determined that all CAT 
Reporters, including both Industry Members and Execution Venues 
(including Participants), would begin to be invoiced as promptly as 
possible following the establishment of a billing mechanism. Nasdaq 
will issue a Circular to its members when the billing mechanism is 
established, specifying the date when such invoicing of Industry 
Members will commence.
(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.\48\ 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.\49\ 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 Nasdaq will file such changes 
with the SEC pursuant to Section 19(b) of the Exchange Act, and any 
such changes will become effective in accordance with the requirements 
of Section 19(b).
---------------------------------------------------------------------------

    \48\ The 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 
SROs, such as any changes in costs related to the retirement of 
existing regulatory systems, such as OATS.
    \49\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
---------------------------------------------------------------------------

(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. Nasdaq notes that 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, Nasdaq notes that the 
percentage 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 it also will depend 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 of share volume.

                                        Table II.C-2--2014 Actual Supply
                                                 [Million RINs]
----------------------------------------------------------------------------------------------------------------
                           Period A                                                 Period B
----------------------------------------------------------------------------------------------------------------
                                Market share                         Options       Market share
   Options execution venue          rank             Tier        execution venue       rank            Tier
----------------------------------------------------------------------------------------------------------------
Options Execution Venue A....               1               1   Options                        1               1
                                                                 Execution Venue
                                                                 A.
Options Execution Venue B....               2               1   Options                        2               1
                                                                 Execution Venue
                                                                 B.
Options Execution Venue C....               3               1   Options                        3               1
                                                                 Execution Venue
                                                                 C.
Options Execution Venue D....               4               1   Options                        4               1
                                                                 Execution Venue
                                                                 D.
Options Execution Venue E....               5               1   Options                        5               1
                                                                 Execution Venue
                                                                 E.
Options Execution Venue F....               6               1   Options                        6               1
                                                                 Execution Venue
                                                                 F.
Options Execution Venue G....               7               1   Options                        7               1
                                                                 Execution Venue
                                                                 I.
Options Execution Venue H....               8               1   Options                        8               1
                                                                 Execution Venue
                                                                 H.
Options Execution Venue I....               9               1   Options                        9               1
                                                                 Execution Venue
                                                                 G.
Options Execution Venue J....              10               1   Options                       10               1
                                                                 Execution Venue
                                                                 J.
Options Execution Venue K....              11               1   Options                       11               1
                                                                 Execution Venue
                                                                 L.

[[Page 23455]]

 
Options Execution Venue L....              12               2   Options                       12               2
                                                                 Execution Venue
                                                                 K.
Options Execution Venue M....              13               2   Options                       13               2
                                                                 Execution Venue
                                                                 N.
Options Execution Venue N....              14               2   Options                       14               2
                                                                 Execution Venue
                                                                 M.
Options Execution Venue O....              15               2   Options                       15               2
                                                                 Execution Venue
                                                                 O.
----------------------------------------------------------------------------------------------------------------

(3) Proposed CAT Fee Schedule
    Nasdaq proposes the Consolidated Audit Trail Funding Fees to 
implement the CAT Fees determined by the Operating Committee on 
Nasdaq's Industry Members. The proposed fee schedule has three 
sections, covering definitions, the fee schedule for CAT Fees, and the 
timing and manner of payments. Each of these sections is discussed in 
detail below.
(A) Definitions
    Paragraph (a) of the proposed fee schedule sets forth the 
definitions for the proposed fee schedule. Paragraph (a)(1) states 
that, for purposes of the Consolidated Audit Trail Funding Fees, the 
terms ``CAT NMS Plan,'' ``Industry Member,'' ``NMS Stock,'' ``OTC 
Equity Security'', and ``Participant'' are defined as set forth in Rule 
6810 and Chapter IX, Section 8(a) (Consolidated Audit Trail--
Definitions), respectively.
    The proposed fee schedule imposes different fees on Equity ATSs and 
Industry Members that are not Equity ATSs. Accordingly, the proposed 
fee schedule defines the term ``Equity ATS.'' First, paragraph (a)(2) 
defines an ``ATS'' to mean an alternative trading system as defined in 
Rule 300(a) of Regulation ATS under the Securities Exchange Act of 
1934, as amended, that operates pursuant to Rule 301 of Regulation ATS. 
This is the same definition of an ATS as set forth in Section 1.1 of 
the CAT NMS Plan in the definition of an ``Execution Venue.'' Then, 
paragraph (a)(4) defines an ``Equity ATS'' as an ATS that executes 
transactions in NMS Stocks and/or OTC Equity Securities.
    Paragraph (a)(3) of the proposed fee schedule defines the term 
``CAT Fee'' to mean the Consolidated Audit Trail Funding Fee(s) to be 
paid by Industry Members as set forth in paragraph (b) in the proposed 
fee schedule.
    Finally, Paragraph (a)(6) defines an ``Execution Venue'' as a 
Participant or an ATS (excluding any such ATS that does not execute 
orders). This definition is the same substantive definition as set 
forth in Section 1.1 of the CAT NMS Plan. Paragraph (a)(5) defines an 
``Equity Execution Venue'' as an Execution Venue that trades NMS Stocks 
and/or OTC Equity Securities.
(B) Fee Schedule
    Nasdaq proposes to impose the CAT Fees applicable to its Industry 
Members through paragraph (b) of the proposed fee schedule. Paragraph 
(b)(1) of the proposed fee schedule sets forth the CAT Fees applicable 
to Industry Members other than Equity ATSs. Specifically, paragraph 
(b)(1) states that the Company will assign each Industry Member (other 
than an Equity ATS) to a fee tier once every quarter, where such tier 
assignment is calculated by ranking each Industry Member based on its 
total message traffic for the three months prior to the quarterly tier 
calculation day and assigning each Industry Member to a tier based on 
that ranking and predefined Industry Member percentages. The Industry 
Members with the highest total quarterly message traffic will be ranked 
in Tier 1, and the Industry Members with lowest quarterly message 
traffic will be ranked in Tier 9. Each quarter, each Industry Member 
(other than an Equity ATS) shall pay the following CAT Fee 
corresponding to the tier assigned by the Company for such Industry 
Member for that quarter:

------------------------------------------------------------------------
                                           Percentage of
                  Tier                       industry      Quarterly CAT
                                              members           fee
------------------------------------------------------------------------
1.......................................           0.500        $101,004
2.......................................           2.500          81,153
3.......................................           2.125          57,717
4.......................................           4.625          19,965
5.......................................           3.625          12,489
6.......................................           4.000           7,680
7.......................................          17.500           1,503
8.......................................          20.125             435
9.......................................          45.000              66
------------------------------------------------------------------------

    Paragraph (b)(2) of the proposed fee schedule sets forth the CAT 
Fees applicable to Equity ATSs.\50\ These are the same fees that 
Participants that trade NMS Stocks and/or OTC Equity Securities will 
pay. Specifically, paragraph (b)(2) states that the Company will assign 
each Equity ATS to a fee tier once every quarter, where such tier 
assignment is calculated by ranking each Equity Execution Venue based 
on its total market share of NMS Stocks and OTC Equity Securities for 
the three months prior to the quarterly tier calculation day and 
assigning each Equity Execution Venue to a tier based on that ranking 
and predefined Equity Execution Venue percentages. The Equity Execution 
Venues with the higher total quarterly market share will be ranked in 
Tier 1, and the Equity Execution Venues with the lower quarterly market 
share will be ranked in Tier 2. Specifically, paragraph (b)(2) states 
that, each quarter, each Equity ATS shall pay the following CAT Fee 
corresponding to the tier assigned by the Company for such Equity ATS 
for that quarter:
---------------------------------------------------------------------------

    \50\ Note that no fee schedule is provided for Execution Venue 
ATSs that execute transactions in Listed Options, as no such 
Execution Venue ATSs currently exist due trading restrictions 
related to Listed Options.

------------------------------------------------------------------------
                                           Percentage of
                                              equity       Quarterly CAT
                  Tier                       execution          fee
                                              venues
------------------------------------------------------------------------
1.......................................           25.00         $63,375
2.......................................           75.00          38,820
------------------------------------------------------------------------

(C) Timing and Manner of Payment
    Section 11.4 of the CAT NMS Plan states that the Operating 
Committee shall establish a system for the collection of fees 
authorized under the CAT NMS Plan. The Operating Committee may include 
such collection responsibility as a function of the Plan Processor or 
another administrator. To implement the payment process to be adopted 
by the Operating Committee, paragraph (c)(1) of the proposed fee 
schedule states that the Company will provide each Industry Member with 
one invoice each quarter for its CAT Fees as determined pursuant to 
paragraph (b) of the proposed fee schedule, regardless of whether the 
Industry Member is a member of multiple self-regulatory organizations. 
Paragraph (c)(1) further states that each Industry Member will

[[Page 23456]]

pay its CAT Fees to the Company via the centralized system for the 
collection of CAT Fees established by the Company in the manner 
prescribed by the Company. Nasdaq will provide Industry Members with 
details regarding the manner of payment of CAT Fees by Circular.
    Although the exact fee collection system and processes for CAT fees 
has not yet been established, all CAT fees will be billed and collected 
centrally through the Company, via the Plan Processor or otherwise. 
Although each Participant will adopt its own fee schedule regarding CAT 
Fees, no CAT Fees or portion thereof will be collected by the 
individual Participants. Each Industry Member will receive from the 
Company one invoice for its applicable CAT fees, not separate invoices 
from each Participant of which it is a member. The Industry Members 
will pay the CAT Fees to the Company via the centralized system for the 
collection of CAT fees established by the Company.\51\
---------------------------------------------------------------------------

    \51\ Section 11.4 of the CAT NMS Plan.
---------------------------------------------------------------------------

    Section 11.4 of the CAT NMS Plan also states that Participants 
shall require each Industry Member to pay all applicable authorized 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). Section 11.4 further states that, 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. Therefore, in accordance with Section 11.4 of the CAT NMS Plan, 
Nasdaq proposed to adopt paragraph (c)(2) of the proposed fee schedule. 
Paragraph (c)(2) of the proposed fee schedule states that each Industry 
Member shall pay 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.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\52\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\53\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers, and is 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.
---------------------------------------------------------------------------

    \52\ 15 U.S.C. 78f(b).
    \53\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    As discussed above, the SEC approved the bifurcated, tiered, fixed 
fee funding model in the CAT NMS Plan, finding it was reasonable and 
that it equitably allocated fees among Participants and Industry 
Members. The Exchange believes that the proposed tiered fees adopted 
pursuant to the funding model approved by the SEC in the CAT NMS Plan 
are reasonable, equitably allocated and not unfairly discriminatory.
    Nasdaq believes that this proposal is consistent with the Act 
because it implements, interprets or clarifies the provisions of the 
Plan, and is designed to assist the Exchange and its Industry Members 
in meeting regulatory obligations pursuant to the Plan. In approving 
the Plan, the SEC noted that the Plan ``is necessary and appropriate in 
the public interest, for the protection of investors and the 
maintenance of fair and orderly markets, to remove impediments to, and 
perfect the mechanism of a national market system, or is otherwise in 
furtherance of the purposes of the Act.'' \54\ To the extent that this 
proposal implements, interprets or clarifies the Plan and applies 
specific requirements to Industry Members, Nasdaq believes that this 
proposal furthers the objectives of the Plan, as identified by the SEC, 
and is therefore consistent with the Act.
---------------------------------------------------------------------------

    \54\ Approval Order at 84697.
---------------------------------------------------------------------------

    Nasdaq believes that the proposed tiered fees are reasonable. 
First, the total CAT Fees to be collected would be directly associated 
with the costs of establishing and maintaining the CAT, where such 
costs include Plan Processor costs and costs related to insurance, 
third party services and the operational reserve. The CAT Fees would 
not cover Participant services unrelated to the CAT. In addition, any 
surplus CAT Fees cannot be distributed to the individual Participants; 
such surpluses must be used as a reserve to offset future fees. Given 
the direct relationship between the fees and the CAT costs, Nasdaq 
believes that the total level of the CAT Fees is reasonable.
    In addition, the Exchange believes that the proposed CAT Fees are 
reasonably designed to allocate the total costs of the CAT equitably 
between and among the Participants and Industry Members, and are 
therefore not unfairly discriminatory. As discussed in detail above, 
the proposed tiered fees impose comparable fees on similarly situated 
CAT Reporters. For example, those with a larger impact on the CAT 
(measured via message traffic or market share) pay higher fees, whereas 
CAT Reporters with a smaller impact pay lower fees. Correspondingly, 
the tiered structure lessens the impact on smaller CAT Reporters by 
imposing smaller fees on those CAT Reporters with less market share or 
message traffic. In addition, the funding model takes into 
consideration affiliations between CAT Reporters, imposing comparable 
fees on such affiliated entities.
    Moreover, Nasdaq believes that the division of the total CAT costs 
between Industry Members and Execution Venues, and the division of the 
Execution Venue portion of total costs between Equity and Options 
Execution Venues, is reasonably designed to allocate CAT costs among 
CAT Reporters. The 75/25 division between Industry Members and 
Execution Venues maintains the greatest level of comparability across 
the funding model, keeping in view that comparability should consider 
affiliations among or between CAT Reporters (e.g., firms with multiple 
Industry Members or exchange licenses). Similarly, the 75/25 division 
between Equity and Options Execution Venues maintains elasticity across 
the funding model as well as the greatest level of fee equitability and 
comparability based on the current number of Equity and Options 
Execution Venues.
    Finally, Nasdaq believes that the proposed fees are reasonable 
because they would provide ease of calculation, ease of billing and 
other administrative functions, and predictability of a 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.

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

    Section 6(b)(8) of the Act \55\ requires that SRO rules not impose 
any burden on competition that is not necessary or

[[Page 23457]]

appropriate. Nasdaq 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. Nasdaq notes 
that the proposed rule change implements provisions of the CAT NMS Plan 
approved by the Commission, and is designed to assist Nasdaq in meeting 
its regulatory obligations pursuant to the Plan. Similarly, all 
national securities exchanges and FINRA are proposing this proposed fee 
schedule 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.
---------------------------------------------------------------------------

    \55\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Moreover, as previously described, Nasdaq believes that the 
proposed rule change 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 market share to the CAT Reporter's size, smaller CAT Reporters 
generally pay less than larger CAT Reporters. Accordingly, the Exchange 
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, Nasdaq does 
not believe that the fees will impose any burden on the competition 
between ATSs and exchanges. Accordingly, Nasdaq 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.

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.
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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 [email protected]. Please include 
File Number SR-NASDAQ-2017-046 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-NASDAQ-2017-046. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2017-046, and should 
be submitted on or before June 12, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\57\
---------------------------------------------------------------------------

    \57\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10300 Filed 5-19-17; 8:45 am]
BILLING CODE 8011-01-P



                                                                                  Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices                                                    23439

                                                  because it will synchronize the timing                  comments more efficiently, please use                 in Items I, II, and III below, which Items
                                                  for publication of Appendix B data for                  only one method. The Commission will                  have been prepared by the Exchange.
                                                  all Participants, which should enhance                  post all comments on the Commission’s                 The Commission is publishing this
                                                  the consistency and usefulness of the                   Internet Web site (http://www.sec.gov/                notice to solicit comments on the
                                                  data.16 Therefore, the Commission                       rules/sro.shtml). Copies of the                       proposed rule change from interested
                                                  hereby waives the 30-day operative                      submission, all subsequent                            persons.
                                                  delay and designates the proposed rule                  amendments, all written statements
                                                  change to be operative on the date of                   with respect to the proposed rule                     I. Self-Regulatory Organization’s
                                                  filing.17                                               change that are filed with the                        Statement of the Terms of Substance of
                                                     At any time within 60 days of the                    Commission, and all written                           the Proposed Rule Change
                                                  filing of the proposed rule change, the                 communications relating to the                           The Exchange proposes to amend the
                                                  Commission summarily may                                proposed rule change between the                      Exchange’s fees at Rule 7004 and
                                                  temporarily suspend such rule change if                 Commission and any person, other than                 Chapter XV, Section 14 to adopt a fee
                                                  it appears to the Commission that such                  those that may be withheld from the                   schedule to establish the fees for
                                                  action is necessary or appropriate in the               public in accordance with the                         Industry Members related to the
                                                  public interest, for the protection of                  provisions of 5 U.S.C. 552, will be                   National Market System Plan Governing
                                                  investors, or otherwise in furtherance of               available for Web site viewing and                    the Consolidated Audit Trail (the ‘‘CAT
                                                  the purposes of the Act. If the                         printing in the Commission’s Public                   NMS Plan’’ or ‘‘Plan’’).
                                                  Commission takes such action, the                       Reference Room, 100 F Street NE.,                        The text of the proposed rule change
                                                  Commission shall institute proceedings                  Washington, DC 20549 on official                      is available on the Exchange’s Web site
                                                  to determine whether the proposed rule                  business days between the hours of                    at http://nasdaq.cchwallstreet.com, at
                                                  should be approved or disapproved.                      10:00 a.m. and 3:00 p.m. Copies of the                the principal office of the Exchange, and
                                                  IV. Solicitation of Comments                            filing also will be available for                     at the Commission’s Public Reference
                                                                                                          inspection and copying at the principal               Room.
                                                    Interested persons are invited to                     office of the Exchange. All comments
                                                  submit written data, views, and                                                                               II. Self-Regulatory Organization’s
                                                                                                          received will be posted without change;
                                                  arguments concerning the foregoing,                                                                           Statement of the Purpose of, and
                                                                                                          the Commission does not edit personal
                                                  including whether the proposed rule                     identifying information from                          Statutory Basis for, the Proposed Rule
                                                  change is consistent with the Act.                      submissions. You should submit only                   Change
                                                  Comments may be submitted by any of                     information that you wish to make                        In its filing with the Commission, the
                                                  the following methods:                                  available publicly. All submissions                   Exchange included statements
                                                  Electronic Comments                                     should refer to File Number SR–                       concerning the purpose of and basis for
                                                                                                          BatsBYX–2017–10 and should be                         the proposed rule change and discussed
                                                    • Use the Commission’s Internet                       submitted on or before June 12, 2017.                 any comments it received on the
                                                  comment form (http://www.sec.gov/                                                                             proposed rule change. The text of these
                                                  rules/sro.shtml); or                                      For the Commission, by the Division of
                                                                                                          Trading and Markets, pursuant to delegated            statements may be examined at the
                                                    • Send an email to rule-                                                                                    places specified in Item IV below. The
                                                                                                          authority.18
                                                  comments@sec.gov. Please include File                                                                         Exchange has prepared summaries, set
                                                                                                          Eduardo A. Aleman,
                                                  Number SR–BatsBYX–2017–10 on the                                                                              forth in sections A, B, and C below, of
                                                  subject line.                                           Assistant Secretary.
                                                                                                          [FR Doc. 2017–10310 Filed 5–19–17; 8:45 am]
                                                                                                                                                                the most significant aspects of such
                                                  Paper Comments                                          BILLING CODE 8011–01–P
                                                                                                                                                                statements.
                                                     • Send paper comments in triplicate                                                                        A. Self-Regulatory Organization’s
                                                  to Secretary, Securities and Exchange                                                                         Statement of the Purpose of, and the
                                                  Commission, 100 F Street NE.,                           SECURITIES AND EXCHANGE                               Statutory Basis for, the Proposed Rule
                                                  Washington, DC 20549–1090.                              COMMISSION                                            Change
                                                  All submissions should refer to File                    [Release No. 34–80696; File No. SR–                   1. Purpose
                                                  Number SR–BatsBYX–2017–10. This                         NASDAQ–2017–046]
                                                  file number should be included on the                                                                            The purpose of the proposed rule
                                                  subject line if email is used. To help the              Self-Regulatory Organizations; The                    change is to adopt a fee schedule to
                                                  Commission process and review your                      NASDAQ Stock Market LLC; Notice of                    establish the fees for Industry Members
                                                                                                          Filing and Immediate Effectiveness of                 related to the CAT NMS Plan.
                                                     16 The Commission recently granted exemptive         Proposed Rule Change To Amend the                        Bats BYX Exchange, Inc., Bats BZX
                                                  relief to the Participants delay the publication of     Exchange’s Transaction Fees at Rule                   Exchange, Inc., Bats EDGA Exchange,
                                                  their Appendix B data until August 31, 2017. See        7004 and Chapter XV, Section 14                       Inc., Bats EDGX Exchange, Inc., BOX
                                                  Letter from David S. Shillman, Associate Director,
                                                  Division of Trading and Markets, Commission, to
                                                                                                                                                                Options Exchange LLC, C2 Options
                                                                                                          May 16, 2017.
                                                  Jennifer Piorko Mitchell, Vice President and Deputy                                                           Exchange, Incorporated, Chicago Board
                                                  Corporate Secretary, FINRA, dated April 28, 2017.
                                                                                                             Pursuant to Section 19(b)(1) of the                Options Exchange, Incorporated,
                                                  The Commission notes that other Participants have       Securities Exchange Act of 1934 (‘‘Act’’              Chicago Stock Exchange, Inc., Financial
                                                  submitted proposed rule changes to delay the            or ‘‘Exchange Act’’),1 and Rule 19b–4                 Industry Regulatory Authority, Inc.
                                                  publication of Appendix B data until August 31,         thereunder,2 notice is hereby given that
                                                  2017. See e.g., SR–BatsBZX–2017–31; SR–                                                                       (‘‘FINRA’’), Investors’ Exchange LLC,
                                                  BatsEDGA–2017–10; SR–BatsEDGX–2017–19; SR–
                                                                                                          on May 2, 2017, The NASDAQ Stock                      Miami International Securities
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                                                  BX–2017–022; SR–CHX–2017–07; SR–FINRA–                  Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’)               Exchange, LLC, MIAX PEARL, LLC,
                                                  2017–010; SR–IEX–2017–12; SR–NASDAQ–2017–               filed with the Securities and Exchange                NASDAQ BX, Inc., Nasdaq GEMX, LLC,
                                                  044; SR–Phlx–2017–33; SR–NYSE–2017–19; SR–              Commission (‘‘SEC’’ or ‘‘Commission’’)
                                                  NYSEArca–2017–49; SR–NYSEMKT–2017–24.                                                                         Nasdaq ISE, LLC, Nasdaq MRX, LLC,3
                                                     17 For purposes only of waiving the operative
                                                                                                          the proposed rule change as described
                                                  delay for this proposal, the Commission has                                                                     3 ISE Gemini, LLC, ISE Mercury, LLC and
                                                                                                            18 17 CFR 200.30–3(a)(12).
                                                  considered the proposed rule’s impact on                                                                      International Securities Exchange, LLC have been
                                                                                                            1 15 U.S.C. 78s(b)(1).
                                                  efficiency, competition, and capital formation. See                                                           renamed Nasdaq GEMX, LLC, Nasdaq MRX, LLC,
                                                  15 U.S.C. 78c(f).                                         2 17 CFR 240.19b–4.                                                                          Continued




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                                                  23440                            Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices

                                                  NASDAQ PHLX LLC, The NASDAQ                              filing to propose the Consolidated Audit             the CAT. Industry Members with lower
                                                  Stock Market LLC, New York Stock                         Trail Funding Fees, which will require               levels of message traffic will pay a lower
                                                  Exchange LLC, NYSE MKT LLC, NYSE                         Industry Members that are SRO                        fee and Industry Members with higher
                                                  Arca, Inc. and NYSE National, Inc.4                      members to pay the CAT Fees                          levels of message traffic will pay a
                                                  (collectively, the ‘‘Participants’’) filed               determined by the Operating                          higher fee. (See Section 3(a)(2)(B) [sic]
                                                  with the Commission, pursuant to                         Committee.                                           below)
                                                  Section 11A of the Exchange Act 5 and                                                                            • Execution Venue Fees. Each Equity
                                                                                                           (1) Executive Summary                                Execution Venue will be placed in one
                                                  Rule 608 of Regulation NMS
                                                  thereunder,6 the CAT NMS Plan.7 The                        The following provides an executive                of two tiers of fixed fees based on
                                                  Participants filed the Plan to comply                    summary of the CAT funding model                     market share, and each Options
                                                  with Rule 613 of Regulation NMS under                    approved by the Operating Committee,                 Execution Venue will be placed in one
                                                  the Exchange Act. The Plan was                           as well as Industry Members’ rights and              of two tiers of fixed fees based on
                                                  published for comment in the Federal                     obligations related to the payment of                market share. Equity Execution Venue
                                                  Register on May 17, 2016,8 and                           CAT Fees calculated pursuant to the                  market share will be determined by
                                                  approved by the Commission, as                           CAT funding model. A detailed                        calculating each Equity Execution
                                                  modified, on November 15, 2016.9 The                     description of the CAT funding model                 Venue’s proportion of the total volume
                                                  Plan is designed to create, implement                    and the CAT Fees follows this executive              of NMS Stock and OTC Equity shares
                                                  and maintain a consolidated audit trail                  summary.                                             reported by all Equity Execution Venues
                                                  (‘‘CAT’’) that would capture customer                    (A) CAT Funding Model                                during the relevant time period.
                                                  and order event information for orders                                                                        Similarly, market share for Options
                                                  in NMS Securities and OTC Equity                            • CAT Costs. The CAT funding model                Execution Venues will be determined by
                                                  Securities, across all markets, from the                 is designed to establish CAT-specific                calculating each Options Execution
                                                  time of order inception through routing,                 fees to collectively recover the costs of            Venue’s proportion of the total volume
                                                  cancellation, modification, or execution                 building and operating the CAT from all              of Listed Options contracts reported by
                                                  in a single consolidated data source.                    CAT Reporters, including Industry                    all Options Execution Venues during
                                                  The Plan accomplishes this by creating                   Members and Participants. The overall                the relevant time period. Equity
                                                  CAT NMS, LLC (the ‘‘Company’’), of                       CAT costs for the calculation of the CAT             Execution Venues with a larger market
                                                  which each Participant is a member, to                   Fees in this fee filing are comprised of             share will pay a larger CAT Fee than
                                                  operate the CAT.10 Under the CAT NMS                     Plan Processor CAT costs and non-Plan                Equity Execution Venues with a smaller
                                                  Plan, the Operating Committee of the                     Processor CAT costs incurred, and                    market share. Similarly, Options
                                                  Company (‘‘Operating Committee’’) has                    estimated to be incurred, from                       Execution Venues with a larger market
                                                  discretion to establish funding for the                  November 21, 2016 through November                   share will pay a larger CAT Fee than
                                                  Company to operate the CAT, including                    21, 2017. (See Section 3(a)(2)(E) [sic]              Options Execution Venues with a
                                                  establishing fees that the Participants                  below 13)                                            smaller market share. (See Section
                                                  will pay, and establishing fees for                         • Bifurcated Funding Model. The                   3(a)(2)(C) [sic] below)
                                                  Industry Members that will be                            CAT NMS Plan requires a bifurcated                      • Cost Allocation. For the reasons
                                                  implemented by the Participants (‘‘CAT                   funding model, where costs associated                discussed below, in designing the
                                                  Fees’’).11 The Participants are required                 with building and operating the CAT                  model, the Operating Committee
                                                  to file with the SEC under Section 19(b)                 would be borne by (1) Participants and               determined that 75 percent of total costs
                                                  of the Exchange Act any such CAT Fees                    Industry Members that are Execution                  recovered would be allocated to
                                                  applicable to Industry Members that the                  Venues for Eligible Securities through               Industry Members (other than Execution
                                                  Operating Committee approves.12                          fixed tier fees based on market share,               Venue ATSs) and 25 percent would be
                                                  Accordingly, Nasdaq submits this fee                     and (2) Industry Members (other than                 allocated to Execution Venues. In
                                                                                                           alternative trading systems (‘‘ATSs’’)               addition, the Operating Committee
                                                  and Nasdaq ISE, LLC, respectively. See Securities
                                                                                                           that execute transactions in Eligible                determined to allocate 75 percent of
                                                  Exchange Act Release No. 80248 (March 15, 2017),         Securities (‘‘Execution Venue ATSs’’))               Execution Venue costs recovered to
                                                  82 FR 14547 (March 21, 2017); Securities Exchange        through fixed tier fees based on message             Equity Execution Venues and 25 percent
                                                  Act Release No. 80326 (March 29, 2017), 82 FR            traffic for Eligible Securities. (See
                                                  16460 (April 4, 2017); and Securities Exchange Act                                                            to Options Execution Venues. (See
                                                  Release No. 80325 (March 29, 2017), 82 FR 16445          Section 3(a)(2) [sic] below)                         Section 3(a)(2)(D) [sic] below)
                                                  (April 4, 2017).                                            • Industry Member Fees. Each                         • Comparability of Fees. The CAT
                                                     4 National Stock Exchange, Inc. has been renamed      Industry Member (other than Execution                funding model requires that the CAT
                                                  NYSE National, Inc. See Securities Exchange Act          Venue ATSs) will be placed into one of
                                                  Release No. 79902 (Jan. 30, 2017), 82 FR 9258                                                                 Fees charged to the CAT Reporters with
                                                  (February 3, 2017).
                                                                                                           nine tiers of fixed fees, based on                   the most CAT-related activity (measured
                                                     5 15 U.S.C. 78k–1.                                    ‘‘message traffic’’ in Eligible Securities           by market share and/or message traffic,
                                                     6 17 CFR 242.608.                                     for a defined period (as discussed                   as applicable) are generally comparable
                                                     7 See Letter from the Participants to Brent J.        below). Prior to the start of CAT                    (where, for these comparability
                                                  Fields, Secretary, Commission, dated September 30,       reporting, ‘‘message traffic’’ will be               purposes, the tiered fee structure takes
                                                  2014; and Letter from Participants to Brent J. Fields,   comprised of historical equity and
                                                  Secretary, Commission, dated February 27, 2015.                                                               into consideration affiliations between
                                                  On December 24, 2015, the Participants submitted         equity options orders, cancels and
                                                                                                                                                                or among CAT Reporters, whether
                                                  an amendment to the CAT NMS Plan. See Letter             quotes provided by each exchange and
                                                                                                                                                                Execution Venues and/or Industry
                                                  from Participants to Brent J. Fields, Secretary,         FINRA over the previous three months.
                                                  Commission, dated December 23, 2015.                                                                          Members). (See Section 3(a)(2)(F) [sic]
                                                                                                           After an Industry Member begins
                                                                                                                                                                below)
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                                                     8 Securities Exchange Act Release No. 77724

                                                  (April 27, 2016), 81 FR 30614 (May 17, 2016).
                                                                                                           reporting to the CAT, ‘‘message traffic’’
                                                     9 Securities Exchange Act Release No. 79318           will be calculated based on the Industry             (B) CAT Fees for Industry Members
                                                  (November 15, 2016), 81 FR 84696 (November 23,           Member’s Reportable Events reported to                 • Fee Schedule. The quarterly CAT
                                                  2016) (‘‘Approval Order’’).
                                                     10 The Plan also serves as the limited liability        13 The Commission notes that references to
                                                                                                                                                                Fees for each tier for Industry Members
                                                  company agreement for the Company.                       Sections 3(a)(2) and 3(a)(3) in this Executive
                                                                                                                                                                are set forth in the two fee schedules in
                                                     11 Section 11.1(b) of the CAT NMS Plan.
                                                                                                           Summary should be instead to Sections II.A.1.(2)     the Consolidated Audit Trail Funding
                                                     12 Id.                                                and II.A.1.(3), respectively.                        Fees, one for Equity ATSs and one for


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                                                                                      Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices                                                    23441

                                                  Industry Members other than Equity                         Members.’’ 16 The Commission further                        In addition, multiple reviews of
                                                  ATSs. (See Section 3(a)(3)(B) [sic]                        noted the following:                                     current broker-dealer order and trading
                                                  below)                                                        The Commission believes that the                      data submitted under existing reporting
                                                     • Quarterly Invoices. Industry                          proposed funding model reflects a reasonable             requirements showed a wide range in
                                                  Members will be billed quarterly for                       exercise of the Participants’ funding                    activity among broker-dealers, with a
                                                  CAT Fees, with the invoices payable                        authority to recover the Participants’ costs             number of broker-dealers submitting
                                                                                                             related to the CAT. The CAT is a regulatory              fewer than 1,000 orders per month and
                                                  within 30 days. The quarterly invoices
                                                                                                             facility jointly owned by the Participants and           other broker-dealers submitting millions
                                                  will identify within which tier the                        . . . the Exchange Act specifically permits
                                                  Industry Member falls. (See Section                                                                                 and even billions of orders in the same
                                                                                                             the Participants to charge their members fees
                                                  3(a)(3)(C) [sic] below)                                    to fund their self-regulatory obligations. The
                                                                                                                                                                      period. Accordingly, the CAT NMS Plan
                                                                                                                                                                      includes a tiered approach to fees. The
                                                     • Centralized Payment. Each Industry                    Commission further believes that the
                                                                                                             proposed funding model is designed to                    tiered approach helps ensure that fees
                                                  Member will receive from the Company
                                                                                                             impose fees reasonably related to the                    are equitably allocated among similarly
                                                  one invoice for its applicable CAT Fees,
                                                                                                             Participants’ self-regulatory obligations                situated CAT Reporters and furthers the
                                                  not separate invoices from each                            because the fees would be directly associated            goal of lessening the impact on smaller
                                                  Participant of which it is a member. The                   with the costs of establishing and                       firms.21 The self-regulatory
                                                  Industry Members will pay its CAT Fees                     maintaining the CAT, and not unrelated SRO               organizations considered several
                                                  to the Company via the centralized                         services.17                                              approaches to developing a tiered
                                                  system for the collection of CAT Fees                         Accordingly, the funding model                        model, including defining fee tiers
                                                  established by the Operating Committee.                    imposes fees on both Participants and                    based on such factors as size of firm,
                                                  (See Section 3(a)(3)(C) [sic] below)                       Industry Members.                                        message traffic or trading dollar volume.
                                                     • Billing Commencement. Industry                           In addition, as discussed in Appendix                 After analyzing the alternatives, it was
                                                  Members will begin to receive invoices                     C of the CAT NMS Plan, the Operating                     concluded that the tiering should be
                                                  for CAT Fees as promptly as possible                       Committee considered the advantages                      based on the relative impact of CAT
                                                  following the establishment of a billing                   and disadvantages of a variety of                        Reporters on the CAT System.
                                                  mechanism. Nasdaq will issue an                            alternative funding and cost allocation                     Accordingly, the CAT NMS Plan
                                                  information circular (‘‘Circular’’) to its                 models before selecting the proposed                     contemplates that costs will be allocated
                                                  members when the billing mechanism is                      model.18 After analyzing the various                     across the CAT Reporters on a tiered
                                                  established, specifying the date when                      alternatives, the Operating Committee                    basis to allocate costs to those CAT
                                                  such invoicing of Industry Members                         determined that the proposed tiered,                     Reporters that contribute more to the
                                                  will commence. (See Section 3(a)(2)(G)                     fixed fee funding model provides a                       costs of creating, implementing and
                                                  [sic] below)                                               variety of advantages in comparison to                   maintaining the CAT.22 The fees to be
                                                  (2) Description of the CAT Funding                         the alternatives. First, the fixed fee                   assessed at each tier are calculated so as
                                                  Model                                                      model, as opposed to a variable fee                      to recoup a proportion of costs
                                                                                                             model, provides transparency, ease of                    appropriate to the message traffic or
                                                     Article XI of the CAT NMS Plan                          calculation, ease of billing and other                   market share (as applicable) from CAT
                                                  requires the Operating Committee to                        administrative functions, and                            Reporters in each tier. Therefore,
                                                  approve the operating budget, including                    predictability of a fixed fee. Such factors              Industry Members generating the most
                                                  projected costs of developing and                          are crucial to estimating a reliable                     message traffic will be in the higher
                                                  operating the CAT for the upcoming                         revenue stream for the Company and for                   tiers, and therefore be charged a higher
                                                  year. As set forth in Article XI of the                    permitting CAT Reporters to reasonably                   fee. Industry Members with lower levels
                                                  CAT NMS Plan, the CAT NMS Plan                             predict their payment obligations for                    of message traffic will be in lower tiers
                                                  requires a bifurcated funding model,                       budgeting purposes.19 Additionally, a                    and will be assessed a smaller fee for the
                                                  where costs associated with building                       strictly variable or metered funding                     CAT.23 Correspondingly, Execution
                                                  and operating the Central Repository                       model based on message volume would                      Venues with the highest market share
                                                  would be borne by (1) Participants and                     be far more likely to affect market                      will be in the top tier, and therefore will
                                                  Industry Members that are Execution                        behavior and place an inappropriate                      be charged a higher fee. Execution
                                                  Venues through fixed tier fees based on                    burden on competition. Moreover, as                      Venues with a lower market share will
                                                  market share, and (2) Industry Members                     the SEC noted in approving the CAT                       be in the lower tier and will be assessed
                                                  (other than Execution Venue ATSs)                          NMS Plan, ‘‘[t]he Participants also have                 a smaller fee for the CAT.24
                                                  through fixed tier fees based on message                   offered a reasonable basis for                              The Commission also noted in
                                                  traffic. In its order approving the CAT                    establishing a funding model based on                    approving the CAT NMS Plan that
                                                  NMS Plan, the Commission determined                        broad tiers, in that it be may be easier                 ‘‘[t]he Participants have offered a
                                                  that the proposed funding model was                        to implement.’’ 20                                       credible justification for using different
                                                  ‘‘reasonable’’ 14 and ‘‘reflects a                                                                                  criteria to charge Execution Venues
                                                  reasonable exercise of the Participants’                     16 Id.  at 84795.                                      (market share) and Industry Members
                                                                                                               17 Id.  at 84794.
                                                  funding authority to recover the                                                                                    (message traffic)’’ 25 in the CAT funding
                                                                                                                18 Section B.7, Appendix C of the CAT NMS Plan,
                                                  Participants’ costs related to the                                                                                  model. While there are multiple factors
                                                                                                             Approval Order at 85006.
                                                  CAT.’’ 15                                                     19 In choosing a tiered fee structure, the SROs
                                                                                                                                                                      that contribute to the cost of building,
                                                     More specifically, the Commission                       concluded that the variety of benefits offered by a      maintaining and using the CAT,
                                                  stated in approving the CAT NMS Plan                       tiered fee structure, discussed above, outweighed        processing and storage of incoming
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                                                                                                             the fact that Industry Members in any particular tier    message traffic is one of the most
                                                  that ‘‘[t]he Commission believes that the                  would pay different rates per message traffic order
                                                  proposed funding model is reasonably                       event (e.g., an Industry Member with the largest          21 Section B.7, Appendix C of the CAT NMS Plan,
                                                  designed to allocate the costs of the CAT                  amount of message traffic in one tier would pay a
                                                                                                                                                                      Approval Order at 85006.
                                                  between the Participants and Industry                      smaller amount per order event than an Industry
                                                                                                                                                                       22 Approval Order at 85005.
                                                                                                             Member in the same tier with the least amount of
                                                                                                                                                                       23 Id.
                                                                                                             message traffic). Such variation is the natural result
                                                    14 Approval     Order at 84796.                          of a tiered fee structure.                                24 Id.
                                                    15 Id.   at 84794.                                          20 Approval Order at 84796.                            25 Id. at 84796.




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                                                  23442                           Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices

                                                  significant cost drivers for the CAT.26                 Operating Committee determining fees                  only apply to Industry Members. The
                                                  Thus, the CAT NMS Plan provides that                    applicable to its own members—the                     CAT fees for Participants will be
                                                  the fees payable by Industry Members                    Participants. First, the Company will be              imposed separately by the Operating
                                                  (other than Execution Venue ATSs) will                  operated on a ‘‘break-even’’ basis, with              Committee pursuant to the CAT NMS
                                                  be based on the message traffic                         fees imposed to cover costs and an                    Plan.
                                                  generated by such Industry Member.27                    appropriate reserve. Any surpluses will
                                                     The CAT NMS Plan provides that the                   be treated as an operational reserve to               (A) Funding Principles
                                                  Operating Committee will use different                  offset future fees and will not be                       Section 11.2 of the CAT NMS Plan
                                                  criteria to establish fees for Execution                distributed to the Participants as                    sets forth the principles that the
                                                  Venues and non-Execution Venues due                     profits.32 To ensure that the                         Operating Committee applied in
                                                  to the fundamental differences between                  Participants’ operation of the CAT will               establishing the funding for the
                                                  the two types of entities. In particular,               not contribute to the funding of their                Company. The Operating Committee has
                                                  the CAT NMS Plan provides that fees                     other operations, Section 11.1(c) of the              considered these funding principles as
                                                  charged to CAT Reporters that are                       CAT NMS Plan specifically states that                 well as the other funding requirements
                                                  Execution Venues will be based on the                   ‘‘[a]ny surplus of the Company’s                      set forth in the CAT NMS Plan and in
                                                  level of market share and that costs                    revenues over its expenses shall be                   Rule 613 in developing the proposed
                                                  charged to Industry Members (other                      treated as an operational reserve to                  funding model. The following are the
                                                  than Execution Venue ATSs) will be                      offset future fees.’’ In addition, as set             funding principles in Section 11.2 of the
                                                  based upon message traffic.28 Because                   forth in Article VIII of the CAT NMS                  CAT NMS Plan:
                                                  most Participant message traffic consists               Plan, the Company ‘‘intends to operate                   • To create transparent, predictable
                                                  of quotations, and Participants usually                 in a manner such that it qualifies as a               revenue streams for the Company that
                                                  disseminate quotations in all                           ‘business league’ within the meaning of               are aligned with the anticipated costs to
                                                  instruments they trade, regardless of                   Section 501(c)(6) of the [Internal                    build, operate and administer the CAT
                                                  execution volume, Execution Venues                      Revenue] Code.’’ To qualify as a                      and other costs of the Company;
                                                  that are Participants generally                         business league, an organization must                    • To establish an allocation of the
                                                  disseminate similar amounts of message                  ‘‘not [be] organized for profit and no                Company’s related costs among
                                                  traffic. Accordingly, basing fees for                   part of the net earnings of [the                      Participants and Industry Members that
                                                  Execution Venues on message traffic                     organization can] inure[] to the benefit              is consistent with the Exchange Act,
                                                  would not provide the same degree of                    of any private shareholder or                         taking into account the timeline for
                                                  differentiation among Execution Venues                  individual.’’ 33 As the SEC stated when               implementation of the CAT and
                                                  that it does among Industry Members                     approving the CAT NMS Plan, ‘‘the                     distinctions in the securities trading
                                                  (other than Execution Venue ATSs). In                   Commission believes that the                          operations of Participants and Industry
                                                  contrast, execution volume more                         Company’s application for Section                     Members and their relative impact upon
                                                  accurately delineates the different levels              501(c)(6) business league status                      the Company’s resources and
                                                  of trading activity of Execution                        addresses issues raised by commenters                 operations;
                                                  Venues.29                                               about the Plan’s proposed allocation of
                                                     The CAT NMS Plan’s funding model                                                                              • To establish a tiered fee structure in
                                                                                                          profit and loss by mitigating concerns
                                                  also is structured to avoid a ‘‘reduction                                                                     which the fees charged to: (i) CAT
                                                                                                          that the Company’s earnings could be
                                                  in market quality.’’ 30 The tiered, fixed                                                                     Reporters that are Execution Venues,
                                                                                                          used to benefit individual
                                                  fee funding model is designed to limit                                                                        including ATSs, are based upon the
                                                                                                          Participants.’’ 34
                                                  the disincentives to providing liquidity                   Finally, by adopting a CAT-specific                level of market share; (ii) Industry
                                                  to the market. For example, the                         fee, the Participants will be fully                   Members’ non-ATS activities are based
                                                  Participants expect that a firm that had                transparent regarding the costs of the                upon message traffic; (iii) the CAT
                                                  a large volume of quotes would likely be                CAT. Charging a general regulatory fee,               Reporters with the most CAT-related
                                                  categorized in one of the upper tiers,                  which would be used to cover CAT                      activity (measured by market share and/
                                                  and would not be assessed a fee for this                costs as well as other regulatory costs,              or message traffic, as applicable) are
                                                  traffic directly as they would under a                  would be less transparent than the                    generally comparable (where, for these
                                                  more directly metered model. In                         selected approach of charging a fee                   comparability purposes, the tiered fee
                                                  contrast, strictly variable or metered                  designated to cover CAT costs only.                   structure takes into consideration
                                                  funding models based on message                            A full description of the funding                  affiliations between or among CAT
                                                  volume were far more likely to affect                   model is set forth below. This                        Reporters, whether Execution Venue
                                                  market behavior. In approving the CAT                   description includes the framework for                and/or Industry Members);
                                                  NMS Plan, the SEC stated that ‘‘[t]he                   the funding model as set forth in the                    • To provide for ease of billing and
                                                  Participants also offered a reasonable                  CAT NMS Plan, as well as the details as               other administrative functions;
                                                  basis for establishing a funding model                  to how the funding model will be                         • To avoid any disincentives such as
                                                  based on broad tiers, in that it may be                 applied in practice, including the                    placing an inappropriate burden on
                                                  . . . less likely to have an incremental                number of fee tiers and the applicable                competition and a reduction in market
                                                  deterrent effect on liquidity                           fees for each tier. Nasdaq notes that the             quality; and
                                                  provision.’’ 31                                         complete funding model is described                      • To build financial stability to
                                                     The CAT NMS Plan is structured to                    below, including those fees that are to               support the Company as a going
                                                  avoid potential conflicts raised by the                 be paid by the Participants. The                      concern.
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                                                                                                          proposed Consolidated Audit Trail                     (B) Industry Member Tiering
                                                   26 Section B.7, Appendix C of the CAT NMS Plan,
                                                                                                          Funding Fees, however, do not apply to
                                                  Approval Order at 85005.                                                                                        Under Section 11.3(b) of the CAT
                                                   27 Section 11.3(b) of the CAT NMS Plan.                the Participants; the proposed
                                                   28 Section 11.2(c) of the CAT NMS Plan.                Consolidated Audit Trail Funding Fees                 NMS Plan, the Operating Committee is
                                                   29 Section B.7, Appendix C of the CAT NMS Plan,                                                              required to establish fixed fees to be
                                                  Approval Order at 85005.                                 32 Id.
                                                                                                                at 84792.                                       payable by Industry Members, based on
                                                   30 Section 11.2(e) of the CAT NMS Plan.                 33 26U.S.C. 501(c)(6).                               message traffic generated by such
                                                   31 Approval Order at 84796.                             34 Approval Order at 84793.                          Industry Member, with the Operating


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                                                                                  Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices                                             23443

                                                  Committee establishing at least five and                firms with similar levels of message                  percentage of total recovery, the
                                                  no more than nine tiers.                                traffic. Based on this, the Operating                 percentage allocation of costs recovered
                                                     The CAT NMS Plan clarifies that the                  Committee determined that nine tiers                  for each tier were assigned, allocating
                                                  fixed fees payable by Industry Members                  would best group firms with similar                   higher percentages of recovery to tiers
                                                  pursuant to Section 11.3(b) shall, in                   levels of message traffic, charging those             with higher levels of message traffic
                                                  addition to any other applicable                        firms with higher impact on the CAT                   while avoiding any inappropriate
                                                  message traffic, include message traffic                more, while lowering the burden of                    burden on competition. Furthermore, by
                                                  generated by: (i) an ATS that does not                  Industry Members that have less CAT-                  using percentages of Industry Members
                                                  execute orders that is sponsored by such                related activity.                                     and costs recovered per tier, the
                                                  Industry Member; and (ii) routing orders                   Each Industry Member (other than                   Operating Committee sought to include
                                                  to and from any ATS sponsored by such                   Execution Venue ATSs) will be ranked                  stability and elasticity within the
                                                  Industry Member. In addition, the                       by message traffic and tiered by                      funding model, allowing the funding
                                                  Industry Member fees will apply to                      predefined Industry Member                            model to respond to changes in either
                                                  Industry Members that act as routing                    percentages (the ‘‘Industry Member                    the total number of Industry Members or
                                                  broker-dealers for exchanges. The                       Percentages’’). The Operating                         the total level of message traffic.
                                                  Industry Member fees will not be                        Committee determined to use                              The following chart illustrates the
                                                  applicable, however, to an ATS that                     predefined percentages rather than fixed              breakdown of nine Industry Member
                                                  qualifies as an Execution Venue, as                     volume thresholds to allow the funding                tiers across the monthly average of total
                                                  discussed in more detail in the section                 model to ensure that the total CAT fees               equity and equity options orders,
                                                  on Execution Venue tiering.                             collected recover the intended CAT                    cancels and quotes in Q1 2016 and
                                                     In accordance with Section 11.3(b),                  costs regardless of changes in the total              identifies relative gaps across varying
                                                  the Operating Committee approved a                      level of message traffic. To determine                levels of Industry Member message
                                                  tiered fee structure for Industry                       the fixed percentage of Industry                      traffic as well as message traffic
                                                  Members (other than Execution Venue                     Members in each tier, the Operating                   thresholds between the largest of
                                                  ATSs) as described in this section. In                  Committee analyzed historical message                 Industry Member message traffic gaps.
                                                  determining the tiers, the Operating                    traffic generated by Industry Members                 The Operating Committee referenced
                                                  Committee considered the funding                        across all exchanges and as submitted to              similar distribution illustrations to
                                                  principles set forth in Section 11.2 of                 OATS, and considered the distribution                 determine the appropriate division of
                                                  the CAT NMS Plan, seeking to create                     of firms with similar levels of message               Industry Member percentages in each
                                                  funding tiers that take into account the                traffic, grouping together firms with                 tier by considering the grouping of firms
                                                  relative impact on CAT System                           similar levels of message traffic. Based              with similar levels of message traffic
                                                  resources of different Industry Members,                on this, the Operating Committee                      and seeking to identify relative
                                                  and that establish comparable fees                      identified tiers that would group firms               breakpoints in the message traffic
                                                  among the CAT Reporters with the most                   with similar levels of message traffic,               between such groupings. In reviewing
                                                  Reportable Events. The Operating                        charging those firms with higher impact               the chart and its corresponding table,
                                                  Committee has determined that                           on the CAT more, while lowering the                   note that while these distribution
                                                  establishing nine tiers results in the                  burden on Industry Members that have                  illustrations were referenced to help
                                                  fairest allocation of fees, best                        less CAT-related activity.                            differentiate between Industry Member
                                                  distinguishing between Industry                            The percentage of costs recovered by               tiers, the proposed funding model is
                                                  Members with differing levels of                        each Industry Member tier will be                     directly driven, not by fixed message
                                                  message traffic. Thus, each such                        determined by predefined percentage                   traffic thresholds, but rather by fixed
                                                  Industry Member will be placed into                     allocations (the ‘‘Industry Member                    percentages of Industry Members across
                                                  one of nine tiers of fixed fees, based on               Recovery Allocation’’). In determining                tiers to account for fluctuating levels of
                                                  ‘‘message traffic’’ for a defined period                the fixed percentage allocation of costs              message traffic across time and to
                                                  (as discussed below). A nine tier                       recovered for each tier, the Operating                provide for the financial stability of the
                                                  structure was selected to provide the                   Committee considered the impact of                    CAT by ensuring that the funding model
                                                  widest range of levels for tiering                      CAT Reporter message traffic on the                   will recover the required amounts
                                                  Industry Members such that Industry                     CAT System as well as the distribution                regardless of changes in the number of
                                                  Members submitting significantly less                   of total message volume across Industry               Industry Members or the amount of
                                                  message traffic to the CAT would be                     Members while seeking to maintain                     message traffic. Actual messages in any
                                                  adequately differentiated from Industry                 comparable fees among the largest CAT                 tier will vary based on the actual traffic
                                                  Members submitting substantially more                   Reporters. Accordingly, following the                 in a given measurement period, as well
                                                  message traffic. The Operating                          determination of the percentage of                    as the number of firms included in the
                                                  Committee considered historical                         Industry Members in each tier, the                    measurement period. The Industry
                                                  message traffic generated by Industry                   Operating Committee identified the                    Member Percentages and Industry
                                                  Members across all exchanges and as                     percentage of total market volume for                 Member Recovery Allocation for each
                                                  submitted to FINRA’s Order Audit Trail                  each tier based on the historical message             tier will remain fixed with each
                                                  System (‘‘OATS’’), and considered the                   traffic upon which Industry Members                   Industry Member’s tier to be reassigned
                                                  distribution of firms with similar levels               had been initially ranked. Taking this                periodically, as described below in
                                                  of message traffic, grouping together                   into account along with the resulting                 Section 3(a)(1)(H) [sic].
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                                                  23444                                         Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices




                                                                                                                                                                                                                                                                Monthly average
                                                                                                                                                                                                                                                                 message traffic
                                                                                                                                                                                                                                                                   per industry
                                                                                                                                     Industry Member Tier                                                                                                           member
                                                                                                                                                                                                                                                                (Orders, Quotes
                                                                                                                                                                                                                                                                  and Cancels)

                                                  Tier   1   ..............................................................................................................................................................................................         >10,000,000,000
                                                  Tier   2   ..............................................................................................................................................................................................          >1,000,000,000
                                                  Tier   3   ..............................................................................................................................................................................................           >100,000,000
                                                  Tier   4   ..............................................................................................................................................................................................              >2,500,000
                                                  Tier   5   ..............................................................................................................................................................................................               >200,000
                                                  Tier   6   ..............................................................................................................................................................................................                 >50,000
                                                  Tier   7   ..............................................................................................................................................................................................                  >5,000
                                                  Tier   8   ..............................................................................................................................................................................................                  >1,000
                                                  Tier   9   ..............................................................................................................................................................................................                  ≤1,000



                                                   Based on the above analysis, the                                              following Industry Member Percentages
                                                  Operating Committee approved the                                               and Recovery Allocations:

                                                                                                                                                                                                                                           Percentage
                                                                                                                                                                                                               Percentage                                              Percentage
                                                                                                                                                                                                                                           of Industry
                                                                                                             Industry member tier                                                                              of industry                                               of total
                                                                                                                                                                                                                                            member
                                                                                                                                                                                                                members                                                 recovery
                                                                                                                                                                                                                                            recovery

                                                  Tier   1   ............................................................................................................................................                  0.500                         8.50                  6.38
                                                  Tier   2   ............................................................................................................................................                  2.500                        35.00                 26.25
                                                  Tier   3   ............................................................................................................................................                  2.125                        21.25                 15.94
                                                  Tier   4   ............................................................................................................................................                  4.625                        15.75                 11.81
                                                  Tier   5   ............................................................................................................................................                  3.625                         7.75                  5.81
                                                  Tier   6   ............................................................................................................................................                  4.000                         5.25                  3.94
                                                  Tier   7   ............................................................................................................................................                 17.500                         4.50                  3.38
                                                  Tier   8   ............................................................................................................................................                 20.125                         1.50                  1.13
                                                  Tier   9   ............................................................................................................................................                 45.000                         0.50                  0.38

                                                         Total ......................................................................................................................................                          100                            100               75
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                                                     For the purposes of creating these                                          for the period after the start of CAT                                           start of CAT reporting, ‘‘message traffic’’
                                                  tiers based on message traffic, the                                            reporting. The different definition for                                         will be comprised of historical equity
                                                  Operating Committee determined to                                              message traffic is necessary as there will                                      and equity options orders, cancels and
                                                  define the term ‘‘message traffic’’                                            be no Reportable Events as defined in                                           quotes provided by each exchange and
                                                  separately for the period before the                                           the Plan, prior to the commencement of                                          FINRA over the previous three
                                                                                                                                                                                                                                                                                      EN22MY17.022</GPH>




                                                  commencement of CAT reporting and                                              CAT reporting. Accordingly, prior to the


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                                                                                  Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices                                              23445

                                                  months.35 Prior to the start of CAT                     Industry Members while still providing                 model treats the two types of Execution
                                                  reporting, orders would be comprised of                 predictability in the tiering for Industry             Venues.
                                                  the total number of equity and equity                   Members. Because fee tiers will be
                                                                                                                                                                 (I) NMS Stocks and OTC Equity
                                                  options orders received and originated                  calculated based on message traffic from
                                                                                                                                                                 Securities
                                                  by a member of an exchange or FINRA                     the prior three months, the Operating
                                                  over the previous three-month period,                   Committee will begin calculating                          Section 11.3(a)(i) of the CAT NMS
                                                  including principal orders, cancel/                     message traffic based on an Industry                   Plan states that each Execution Venue
                                                  replace orders, market maker orders                     Member’s Reportable Events reported to                 that (i) executes transactions or, (ii) in
                                                  originated by a member of an exchange,                  the CAT once the Industry Member has                   the case of a national securities
                                                  and reserve (iceberg) orders as well as                 been reporting to the CAT for three                    association, has trades reported by its
                                                  order routes and executions originated                  months. Prior to that, fee tiers will be               members to its trade reporting facility or
                                                  by a member of FINRA, and excluding                     calculated as discussed above with                     facilities for reporting transactions
                                                  order rejects and implied orders.36 In                  regard to the period prior to CAT                      effected otherwise than on an exchange,
                                                  addition, prior to the start of CAT                     reporting.                                             in NMS Stocks or OTC Equity Securities
                                                  reporting, cancels would be comprised                                                                          will pay a fixed fee depending on the
                                                  of the total number of equity and equity                (C) Execution Venue Tiering                            market share of that Execution Venue in
                                                  option cancels received and originated                     Under Section 11.3(a) of the CAT                    NMS Stocks and OTC Equity Securities,
                                                  by a member of an exchange or FINRA                     NMS Plan, the Operating Committee is                   with the Operating Committee
                                                  over a three-month period, excluding                    required to establish fixed fees payable               establishing at least two and not more
                                                  order modifications (e.g., order updates,               by Execution Venues. Section 1.1 of the                than five tiers of fixed fees, based on an
                                                  order splits, partial cancels).                         CAT NMS Plan defines an Execution                      Execution Venue’s NMS Stocks and
                                                  Furthermore, prior to the start of CAT                  Venue as ‘‘a Participant or an alternative             OTC Equity Securities market share. For
                                                  reporting, quotes would be comprised of                 trading system (‘‘ATS’’) (as defined in                these purposes, market share for
                                                  information readily available to the                    Rule 300 of Regulation ATS) that                       Execution Venues that execute
                                                  exchanges and FINRA, such as the total                  operates pursuant to Rule 301 of                       transactions will be calculated by share
                                                  number of historical equity and equity                  Regulation ATS (excluding any such                     volume, and market share for a national
                                                  options quotes received and originated                  ATS that does not execute orders).’’ 38                securities association that has trades
                                                  by a member of an exchange or FINRA                        The Participants determined that                    reported by its members to its trade
                                                  over the prior three-month period.                      ATSs should be included within the                     reporting facility or facilities for
                                                    After an Industry Member begins                       definition of Execution Venue. Given                   reporting transactions effected
                                                  reporting to the CAT, ‘‘message traffic’’               the similarity between the activity of                 otherwise than on an exchange in NMS
                                                  will be calculated based on the Industry                                                                       Stocks or OTC Equity Securities will be
                                                                                                          exchanges and ATSs, both of which
                                                  Member’s Reportable Events reported to                                                                         calculated based on share volume of
                                                                                                          meet the definition of an ‘‘exchange’’ as
                                                  the CAT as will be defined in the                                                                              trades reported, provided, however, that
                                                                                                          set forth in the Exchange Act and the
                                                  Technical Specifications.37                                                                                    the share volume reported to such
                                                                                                          fact that the similar trading models
                                                    The Operating Committee has                                                                                  national securities association by an
                                                                                                          would have similar anticipated burdens
                                                  determined to calculate fee tiers every                                                                        Execution Venue shall not be included
                                                                                                          on the CAT, the Participants determined
                                                  three months, on a calendar quarter                                                                            in the calculation of such national
                                                                                                          that ATSs should be treated in the same
                                                  basis, based on message traffic from the                                                                       security association’s market share.
                                                                                                          manner as the exchanges for the                           In accordance with Section 11.3(a)(i)
                                                  prior three months. Based on its
                                                                                                          purposes of determining the level of fees              of the CAT NMS Plan, the Operating
                                                  analysis of historical data, the Operating
                                                                                                          associated with the CAT.39                             Committee approved a tiered fee
                                                  Committee believes that calculating tiers
                                                                                                             Given the differences between                       structure for Equity Execution Venues
                                                  based on three months of data will
                                                                                                          Execution Venues that trade NMS                        and Option Execution Venues. In
                                                  provide the best balance between
                                                                                                          Stocks and/or OTC Equity Securities                    determining the Equity Execution
                                                  reflecting changes in activity by
                                                                                                          and Execution Venues that trade Listed                 Venue Tiers, the Operating Committee
                                                     35 The SEC approved exemptive relief permitting      Options, Section 11.3(a) addresses                     considered the funding principles set
                                                  Options Market Maker quotes to be reported to the       Execution Venues that trade NMS                        forth in Section 11.2 of the CAT NMS
                                                  Central Repository by the relevant Options              Stocks and/or OTC Equity Securities                    Plan, seeking to create funding tiers that
                                                  Exchange in lieu of requiring that such reporting be    separately from Execution Venues that
                                                  done by both the Options Exchange and the Options                                                              take into account the relative impact on
                                                  Market Maker, as required by Rule 613 of
                                                                                                          trade Listed Options. Equity and                       system resources of different Equity
                                                  Regulation NMS. See Securities Exchange Act             Options Execution Venues are treated                   Execution Venues, and that establish
                                                  Release No. 77265 (Mar. 1, 2017 [sic], 81 FR 11856      separately for two reasons. First, the                 comparable fees among the CAT
                                                  (March 7, 2016). This exemption applies to Options      differing quoting behavior of Equity and
                                                  Market Maker quotes for CAT reporting purposes
                                                                                                                                                                 Reporters with the most Reportable
                                                  only. Therefore, notwithstanding the reporting
                                                                                                          Options Execution Venues makes                         Events. Each Equity Execution Venue
                                                  exemption provided for Options Market Maker             comparison of activity between                         will be placed into one of two tiers of
                                                  quotes, Options Market Maker quotes will be             Execution Venues difficult. Second,                    fixed fees, based on the Execution
                                                  included in the calculation of total message traffic    Execution Venue tiers are calculated
                                                  for Options Market Makers for purposes of tiering
                                                                                                                                                                 Venue’s NMS Stocks and OTC Equity
                                                  under the CAT funding model both prior to CAT
                                                                                                          based on market share of share volume,                 Securities market share. In choosing two
                                                  reporting and once CAT reporting commences.             and it is therefore difficult to compare               tiers, the Operating Committee
                                                     36 Consequently, firms that do not have ‘‘message    market share between asset classes (i.e.,              performed an analysis similar to that
                                                  traffic’’ reported to an exchange or OATS before        equity shares versus options contracts).               discussed above with regard to the non-
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                                                  they are reporting to the CAT would not be subject      Discussed below is how the funding
                                                  to a fee until they begin to report information to                                                             Execution Venue Industry Members to
                                                  CAT.                                                                                                           determine the number of tiers for Equity
                                                     37 If an Industry Member (other than an Execution      38 Although FINRA does not operate an execution
                                                                                                                                                                 Execution Venues. The Operating
                                                  Venue ATS) has no orders, cancels or quotes prior       venue, because it is a Participant, it is considered   Committee determined to establish two
                                                  to the commencement of CAT Reporting, or no             an ‘‘Execution Venue’’ under the Plan for purposes
                                                  Reportable Events after CAT reporting commences,        of determining fees.                                   tiers for Equity Execution Venues, rather
                                                  then the Industry Member would not have a CAT             39 Section B.7, Appendix C of the CAT NMS Plan,      than a larger number of tiers as
                                                  fee obligation.                                         Approval Order at 85005.                               established for non-Execution Venue


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                                                  23446                                        Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices

                                                  Industry Members, because the two tiers                                      during the recent tiering period. A                                      largest CAT Reporters. Accordingly,
                                                  were sufficient to distinguish between                                       37.80/62.20 split was applied to the                                     following the determination of the
                                                  the smaller number of Equity Execution                                       ATS and non-ATS breakdown of FINRA                                       percentage of Execution Venues in each
                                                  Venues based on market share.                                                market share, with FINRA tiered based                                    tier, the Operating Committee identified
                                                  Furthermore, the incorporation of                                            only on the non-ATS portion of its TRF                                   the percentage of total market volume
                                                  additional Equity Execution Venue tiers                                      market share of share volume.                                            for each tier based on the historical
                                                  would result in significantly higher fees                                       Based on this, the Operating                                          market share upon which Execution
                                                  for Tier 1 Equity Execution Venues and                                       Committee considered the distribution                                    Venues had been initially ranked.
                                                  diminish comparability between                                               of Execution Venues, and grouped                                         Taking this into account along with the
                                                  Execution Venues and Industry                                                together Execution Venues with similar                                   resulting percentage of total recovery,
                                                  Members.                                                                     levels of market share of share volume.                                  the percentage allocation of costs
                                                     Each Equity Execution Venue will be                                       In doing so, the Participants considered                                 recovered for each tier were assigned,
                                                  ranked by market share and tiered by                                         that, as previously noted, Execution                                     allocating higher percentages of
                                                  predefined Execution Venue                                                   Venues in many cases have similar                                        recovery to the tier with a higher level
                                                  percentages, (the ‘‘Equity Execution                                         levels of message traffic due to quoting                                 of market share while avoiding any
                                                  Venue Percentages’’). In determining the                                     activity, and determined that it was                                     inappropriate burden on competition.
                                                  fixed percentage of Equity Execution                                         simpler and more appropriate to have                                     Furthermore, due to the similar levels of
                                                  Venues in each tier, the Operating                                           fewer, rather than more, Execution                                       impact on the CAT System across
                                                  Committee looked at historical market                                        Venue tiers to distinguish between                                       Execution Venues, there is less variation
                                                  share of share volume for execution                                          Execution Venues.                                                        in CAT Fees between the highest and
                                                  venues. Equities Execution Venue                                                The percentage of costs recovered by                                  lowest of tiers for Execution Venues.
                                                  market share of share volume were                                            each Equity Execution Venue tier will                                    Furthermore, by using percentages of
                                                  sourced from market statistics made                                          be determined by predefined percentage                                   Equity Execution Venues and costs
                                                  publicly-available by Bats Global                                            allocations (the ‘‘Equity Execution                                      recovered per tier, the Operating
                                                  Markets, Inc. (‘‘Bats’’). ATS market                                         Venue Recovery Allocation’’). In                                         Committee sought to include stability
                                                  share of share volume was sourced from                                       determining the fixed percentage                                         and elasticity within the funding model,
                                                  market statistics made publicly-                                             allocation of costs recovered for each                                   allowing the funding model to respond
                                                  available by FINRA. FINRA trading [sic]                                      tier, the Operating Committee                                            to changes in either the total number of
                                                  reporting facility (‘‘TRF’’) market share                                    considered the impact of CAT Reporter                                    Equity Execution Venues or changes in
                                                  of share volume was sourced from                                             market share activity on the CAT                                         market share.
                                                  market statistics made publicly                                              System as well as the distribution of                                       Based on this analysis, the Operating
                                                  available by Bats. As indicated by                                           total market volume across Equity                                        Committee approved the following
                                                  FINRA, ATSs accounted for 37.80% of                                          Execution Venues while seeking to                                        Equity Execution Venue Percentages
                                                  the share volume across the TRFs                                             maintain comparable fees among the                                       and Recovery Allocations:

                                                                                                                                                                                                        Percentage      Percentage     Percentage
                                                                                                                                                                                                         of equity      of execution
                                                                                                      Equity execution venue tier                                                                                                        of total
                                                                                                                                                                                                         execution         venue        recovery
                                                                                                                                                                                                          venues          recovery

                                                  Tier 1 ............................................................................................................................................         25.00            26.00          6.50
                                                  Tier 2 ............................................................................................................................................         75.00            49.00         12.25

                                                         Total ......................................................................................................................................           100               75         18.75



                                                     The following table exhibits the                                          tier to be reassigned periodically, as                  Venue’s Listed Options market share.
                                                  relative separation of market share of                                       described below in Section 3(a)(1)(I)                   For these purposes, market share will be
                                                  share volume between Tier 1 and Tier                                         [sic].                                                  calculated by contract volume.
                                                  2 Equity Execution Venues. In                                                                                                           In accordance with Section 11.3(a)(ii)
                                                  reviewing the table, note that while this                                                                                 Equity     of the CAT NMS Plan, the Operating
                                                  division was referenced as a data point                                                                                   market
                                                                                                                                      Equity execution                     share of    Committee approved a tiered fee
                                                  to help differentiate between Equity                                                    venue tier                        share      structure for Options Execution Venues.
                                                  Execution Venue tiers, the proposed                                                                                      volume      In determining the tiers, the Operating
                                                  funding model is directly driven not by                                                                                    (%)       Committee considered the funding
                                                  market share thresholds, but rather by
                                                                                                                               Tier 1 ....................................          ≥1 principles set forth in Section 11.2 of
                                                  fixed percentages of Equity Execution                                        Tier 2 ....................................          <1 the CAT NMS Plan, seeking to create
                                                  Venues across tiers to account for                                                                                                   funding tiers that take into account the
                                                  fluctuating levels of market share across                                    (II) Listed Options                                     relative impact on system resources of
                                                  time. Actual market share in any tier                                                                                                different Options Execution Venues,
                                                  will vary based on the actual market                                            Section 11.3(a)(ii) of the CAT NMS                   and that establish comparable fees
                                                  activity in a given measurement period,                                      Plan states that each Execution Venue                   among the CAT Reporters with the most
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                                                  as well as the number of Equity                                              that executes transactions in Listed                    Reportable Events. Each Options
                                                  Execution Venues included in the                                             Options will pay a fixed fee depending                  Execution Venue will be placed into one
                                                  measurement period. The Equity                                               on the Listed Options market share of                   of two tiers of fixed fees, based on the
                                                  Execution Venue Percentages and                                              that Execution Venue, with the                          Execution Venue’s Listed Options
                                                  Equity Execution Venue Recovery                                              Operating Committee establishing at                     market share. In choosing two tiers, the
                                                  Allocation for each tier will remain                                         least two and no more than five tiers of                Operating Committee performed an
                                                  fixed with each Equity Execution Venue                                       fixed fees, based on an Execution                       analysis similar to that discussed above


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                                                                                               Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices                                                                          23447

                                                  with regard to Industry Members (other                                       percentages, (the ‘‘Options Execution                                    considered the impact of CAT Reporter
                                                  than Execution Venue ATSs) to                                                Venue Percentages’’). To determine the                                   market share activity on the CAT
                                                  determine the number of tiers for                                            fixed percentage of Options Execution                                    System as well as the distribution of
                                                  Options Execution Venues. The                                                Venues in each tier, the Operating                                       total market volume across Options
                                                  Operating Committee determined to                                            Committee analyzed the historical and                                    Execution Venues while seeking to
                                                  establish two tiers for Options                                              publicly available market share of                                       maintain comparable fees among the
                                                  Execution Venues, rather than a larger                                       Options Execution Venues to group                                        largest CAT Reporters. Furthermore, by
                                                  number of tiers as established for                                           Options Execution Venues with similar                                    using percentages of Options Execution
                                                  Industry Members (other than Execution                                       market shares across the tiers. Options                                  Venues and costs recovered per tier, the
                                                  Venue ATSs), because the two tiers                                           Execution Venue market share of share                                    Operating Committee sought to include
                                                  were sufficient to distinguish between                                       volume were sourced from market                                          stability and elasticity within the
                                                  the smaller number of Options                                                statistics made publicly-available by                                    funding model, allowing the funding
                                                  Execution Venues based on market                                             Bats. The process for developing the                                     model to respond to changes in either
                                                  share. Furthermore, due to the smaller                                       Options Execution Venue Percentages                                      the total number of Options Execution
                                                  number of Options Execution Venues,                                          was the same as discussed above with                                     Venues or changes in market share. The
                                                  the incorporation of additional Options                                      regard to Equity Execution Venues.                                       process for developing the Options
                                                  Execution Venue tiers would result in                                           The percentage of costs recovered by
                                                                                                                               each Options Execution Venue tier will                                   Execution Venue Recovery Allocation
                                                  significantly higher fees for Tier 1
                                                                                                                               be determined by predefined percentage                                   was the same as discussed above with
                                                  Options Execution Venues and reduce
                                                                                                                               allocations (the ‘‘Options Execution                                     regard to Equity Execution Venues.
                                                  comparability between Execution
                                                  Venues and Industry Members.                                                 Venue Recovery Allocation’’). In                                           Based on this analysis, the Operating
                                                    Each Options Execution Venue will                                          determining the fixed percentage                                         Committee approved the following
                                                  be ranked by market share and tiered by                                      allocation of costs recovered for each                                   Options Execution Venue Percentages
                                                  predefined Execution Venue                                                   tier, the Operating Committee                                            and Recovery Allocations:

                                                                                                                                                                                                        Percentage       Percentage     Percentage
                                                                                                                                                                                                         of options      of execution
                                                                                                    Options execution venue tier                                                                                                          of total
                                                                                                                                                                                                         execution          venue        recovery
                                                                                                                                                                                                          venues           recovery

                                                  Tier 1 ............................................................................................................................................          75.00            20.00          5.00
                                                  Tier 2 ............................................................................................................................................          25.00             5.00          1.25

                                                         Total ......................................................................................................................................            100               25          6.25



                                                     The following table exhibits the                                                                                    reported by all Equity Execution Venues
                                                                                                                                                                                      Options
                                                  relative separation of market share of                                                                                 during the relevant time period.
                                                                                                                                                                                       market
                                                  share volume between Tier 1 and Tier                                          Options execution                                     share of
                                                                                                                                                                         Similarly, market share for Options
                                                  2 Options Execution Venues. In                                                     venue tier                                        share
                                                                                                                                                                         Execution Venues will be determined by
                                                                                                                                                                                      volume
                                                  reviewing the table, note that while this                                                                              calculating each Options Execution
                                                                                                                                                                                         %
                                                  division was referenced as a data point                                                                                Venue’s proportion of the total volume
                                                  to help differentiate between Options                                   Tier 2 .................................... <1 of Listed Options contracts reported by
                                                  Execution Venue tiers, the proposed                                                                                    all Options Execution Venues during
                                                  funding model is directly driven, not by                                (III) Market Share/Tier Assignments            the relevant time period.
                                                  market share thresholds, but rather by                                                                                    The Operating Committee has
                                                                                                                             The Operating Committee determined determined to calculate fee tiers for
                                                  fixed percentages of Options Execution
                                                                                                                          that, prior to the start of CAT reporting,     Execution Venues every three months
                                                  Venues across tiers to account for
                                                                                                                          market share for Execution Venues              based on market share from the prior
                                                  fluctuating levels of market share across
                                                                                                                          would be sourced from publicly-                three months. Based on its analysis of
                                                  time. Actual market share in any tier
                                                                                                                          available market data. Options and             historical data, the Operating Committee
                                                  will vary based on the actual market
                                                                                                                          equity volumes for Participants will be        believes calculating tiers based on three
                                                  activity in a given measurement period,
                                                                                                                          sourced from market data made publicly months of data will provide the best
                                                  as well as the number of Options
                                                                                                                          available by Bats while Execution              balance between reflecting changes in
                                                  Execution Venues included in the
                                                                                                                          Venue ATS volumes will be sourced              activity by Execution Venues while still
                                                  measurement period. The Options
                                                                                                                          from market data made publicly                 providing predictability in the tiering
                                                  Execution Venue Percentages and
                                                                                                                          available by FINRA. Set forth in the           for Execution Venues.
                                                  Equity Execution Venue Recovery
                                                                                                                          Appendix are two charts, one listing the
                                                  Allocation for each tier will remain                                                                                   (D) Allocation of Costs
                                                                                                                          current Equity Execution Venues, each
                                                  fixed with each Options Execution
                                                                                                                          with its rank and tier, and one listing           In addition to the funding principles
                                                  Venue tier to be reassigned periodically,
                                                                                                                          the current Options Execution Venues,          discussed above, including
                                                  as described below in Section 3(a)(1)(I)
                                                                                                                          each with its rank and tier.                   comparability of fees, Section 11.1(c) of
                                                  [sic].
                                                                                                                             After the commencement of CAT               the CAT NMS Plan also requires
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                                                                                                         Options          reporting, market share for Execution          expenses to be fairly and reasonably
                                                                                                          market          Venues will be sourced from data               shared among the Participants and
                                                          Options execution                              share of         reported to the CAT. Equity Execution          Industry Members. Accordingly, in
                                                              venue tier                                  share           Venue market share will be determined          developing the proposed fee schedules
                                                                                                         volume
                                                                                                            %             by calculating each Equity Execution           pursuant to the funding model, the
                                                                                                                          Venue’s proportion of the total volume         Operating Committee calculated how
                                                  Tier 1 ....................................                          ≥1 of NMS Stock and OTC Equity shares             the CAT costs would be allocated


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                                                  23448                                    Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices

                                                  between Industry Members and                                          Members expected to report to the CAT                                 Committee has determined overall CAT
                                                  Execution Venues, and how the portion                                 than Execution Venues (e.g., an                                       costs to be comprised of Plan Processor
                                                  of CAT costs allocated to Execution                                   estimated 1,630 Industry Members                                      costs and non-Plan Processor costs,
                                                  Venues would be allocated between                                     versus 70 Execution Venues as of                                      which are estimated to be $50,700,000
                                                  Equity Execution Venues and Options                                   January 2017).                                                        in total for the year beginning November
                                                  Execution Venues. These                                                                                                                     21, 2016.40
                                                                                                                        (II) Allocation Between Equity
                                                  determinations are described below.                                                                                                            The Plan Processor costs relate to
                                                                                                                        Execution Venues and Options
                                                                                                                                                                                              costs incurred by the Plan Processor and
                                                  (I) Allocation Between Industry                                       Execution Venues
                                                                                                                                                                                              consist of the Plan Processor’s current
                                                  Members and Execution Venues
                                                                                                                           The Operating Committee also                                       estimates of average yearly ongoing
                                                     In determining the cost allocation                                 analyzed how the portion of CAT costs                                 costs, including development cost,
                                                  between Industry Members (other than                                  allocated to Execution Venues would be                                which total $37,500,000. This amount is
                                                  Execution Venue ATSs) and Execution                                   allocated between Equity Execution                                    based upon the fees due to the Plan
                                                  Venues, the Operating Committee                                       Venues and Options Execution Venues.                                  Processor pursuant to the agreement
                                                  analyzed a range of possible splits for                               In considering this allocation of costs,                              with the Plan Processor.
                                                  revenue recovered from such Industry                                  the Operating Committee analyzed a                                       The non-Plan Processor estimated
                                                  Members and Execution Venues. Based                                   range of alternative splits for revenue                               costs incurred and to be incurred by the
                                                  on this analysis, the Operating                                       recovered between Equity and Options                                  Company through November 21, 2017
                                                  Committee determined that 75 percent                                  Execution Venues, including a 70/30,                                  consist of three categories of costs. The
                                                  of total costs recovered would be                                     67/33, 65/35, 50/50 and 25/75 split.                                  first category of such costs are third
                                                  allocated to Industry Members (other                                  Based on this analysis, the Operating                                 party support costs, which include
                                                  than Execution Venue ATSs) and 25                                     Committee determined to allocate 75                                   historic legal fees, consulting fees and
                                                  percent would be allocated to Execution                               percent of Execution Venue costs                                      audit fees from November 21, 2016 until
                                                  Venues. The Operating Committee                                       recovered to Equity Execution Venues                                  the date of filing as well as estimated
                                                  determined that this 75/25 division                                   and 25 percent to Options Execution                                   third party support costs for the rest of
                                                  maintained the greatest level of                                      Venues. The Operating Committee                                       the year. These amount to an estimated
                                                  comparability across the funding model,                               determined that a 75/25 division                                      $5,200,000. The second category of non-
                                                  keeping in view that comparability                                    between Equity and Options Execution                                  Plan Processor costs are estimated
                                                  should consider affiliations among or                                 Venues maintained elasticity across the                               insurance costs for the year. Based on
                                                  between CAT Reporters (e.g., firms with                               funding model as well the greatest level                              discussions with potential insurance
                                                  multiple Industry Members and/or                                      of fee equitability and comparability                                 providers, assuming $2–5 million
                                                  exchange licenses). For example, the                                  based on the current number of Equity                                 insurance premium on $100 million in
                                                  cost allocation establishes fees for the                              and Options Execution Venues. For                                     coverage, the Company has received an
                                                  largest Industry Members (i.e., those                                 example, the allocation establishes fees                              estimate of $3,000,000 for the annual
                                                  Industry Members in Tiers 1, 2 and 3)                                 for the larger Equity Execution Venues                                cost. The final cost figures will be
                                                  that are comparable to the largest Equity                             that are comparable to the larger                                     determined following receipt of final
                                                  Execution Venues and Options                                          Options Execution Venues, and fees for                                underwriter quotes. The third category
                                                  Execution Venues (i.e., those Execution                               the smaller Equity Execution Venues                                   of non-Plan Processor costs is the
                                                  Venues in Tier 1). In addition, the cost                              that are comparable to the smaller                                    operational reserve, which is comprised
                                                  allocation establishes fees for Execution                             Options Execution Venues. In addition                                 of three months of ongoing Plan
                                                  Venue complexes that are comparable to                                to fee comparability between Equity                                   Processor costs ($9,375,000), third party
                                                  those of Industry Member complexes.                                   Execution Venues and Options                                          support costs ($1,300,000) and
                                                  For example, when analyzing                                           Execution Venues, the allocation also                                 insurance costs ($750,000). The
                                                  alternative allocations, other possible                               establishes equitability between larger                               Operating Committee aims to
                                                  allocations led to much higher fees for                               (Tier 1) and smaller (Tier 2) Execution                               accumulate the necessary funds for the
                                                  larger Industry Members than for larger                               Venues based upon the level of market                                 establishment of the three-month
                                                  Execution Venues or vice versa, and/or                                share. Furthermore, the allocation is                                 operating reserve for the Company
                                                  led to much higher fees for Industry                                  intended to reflect the relative levels of                            through the CAT Fees charged to CAT
                                                  Member complexes than Execution                                       current equity and options order events.                              Reporters for the year. On an ongoing
                                                  Venue complexes or vice versa.                                                                                                              basis, the Operating Committee will
                                                                                                                        (E) Fee Levels
                                                     Furthermore, the allocation of total                                                                                                     account for any potential need for the
                                                  CAT costs recovered recognizes the                                      The Operating Committee determined                                  replenishment of the operating reserve
                                                  difference in the number of CAT                                       to establish a CAT-specific fee to                                    or other changes to total cost during its
                                                  Reporters that are Industry Members                                   collectively recover the costs of building                            annual budgeting process. The
                                                  versus CAT Reporters that are Execution                               and operating the CAT. Accordingly,                                   following table summarizes the Plan
                                                  Venues. Specifically, the cost allocation                             under the funding model, the sum of the                               Processor and non-Plan Processor cost
                                                  takes into consideration that there are                               CAT Fees is designed to recover the                                   components which comprise the total
                                                  approximately 25 times more Industry                                  total cost of the CAT. The Operating                                  CAT costs of $50,700,000.

                                                                                     Cost category                                                                              Cost component                                               Amount
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                                                  Plan Processor ...........................................................................   Operational Costs .......................................................................    $37,500,000
                                                                                                                                               Third Party Support Costs ..........................................................            5,200,000
                                                  Non-Plan Processor ...................................................................       Operational Reserve ..................................................................       41 5,000,000

                                                                                                                                               Insurance Cost ...........................................................................      3,000,000

                                                     40 It is anticipated that CAT-related costs incurred                 41 This $5,000,000 represents the gradual

                                                  prior to November 21, 2016 will be addressed via                      accumulation of the funds for a target operating
                                                  a separate fee filing.                                                reserve of $11,425,000.



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                                                                                                Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices                                                                                                    23449

                                                                                         Cost category                                                                                           Cost component                                                     Amount

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



                                                    Based on the estimated costs and the                                         Committee determined to impose the                                               For Industry Members (other than
                                                  calculations for the funding model                                             following fees: 42                                                             Execution Venue ATSs):
                                                  described above, the Operating

                                                                                                                                                                                                                                                                   CAT Fees
                                                                                                                                                                                                             Monthly CAT                Quarterly CAT
                                                                                                                          Tier                                                                                                                                     paid annu-
                                                                                                                                                                                                                 fee                         fee                     ally 43

                                                  1   ...................................................................................................................................................              $33,668                   $101,004             $404,016
                                                  2   ...................................................................................................................................................               27,051                     81,153              324,612
                                                  3   ...................................................................................................................................................               19,239                     57,717              230,868
                                                  4   ...................................................................................................................................................                6,655                     19,965               79,860
                                                  5   ...................................................................................................................................................                4,163                     12,489               49,956
                                                  6   ...................................................................................................................................................                2,560                      7,680               30,720
                                                  7   ...................................................................................................................................................                  501                      1,503                6,012
                                                  8   ...................................................................................................................................................                  145                        435                1,740
                                                  9   ...................................................................................................................................................                   22                         66                  264



                                                    For Execution Venues for NMS Stocks
                                                  and OTC Equity Securities:

                                                                                                                                                                                                                                                                   CAT Fees
                                                                                                                                                                                                             Monthly CAT                Quarterly CAT
                                                                                                                          Tier                                                                                                                                     Paid Annu-
                                                                                                                                                                                                                Fee                         Fee                      ally 44

                                                  1 ...................................................................................................................................................                $21,125                     $63,375            $253,500
                                                  2 ...................................................................................................................................................                 12,940                      38,820             155,280



                                                   For Execution Venues for Listed
                                                  Options:

                                                                                                                                                                                                                                                                   CAT Fees
                                                                                                                                                                                                             Monthly CAT                Quarterly CAT
                                                                                                                          Tier                                                                                                                                     Paid Annu-
                                                                                                                                                                                                                Fee                         Fee                      ally 45

                                                  1 ...................................................................................................................................................                $19,205                     $57,615            $230,460
                                                  2 ...................................................................................................................................................                 13,204                      39,612             158,448



                                                    As noted above, the fees set forth in                                        Operating Committee also determined                                            Execution Venue ATSs) and Execution
                                                  the tables reflect the Operating                                               that the fees for Execution Venue                                              Venues in the following manner. Note
                                                  Committee’s decision to ensure                                                 complexes should be comparable to                                              that the calculation of CAT Reporter
                                                  comparable fees between Execution                                              those of Industry Member complexes.                                            fees assumes 53 Equity Execution
                                                  Venues and Industry Members. The fees                                          The difference in the fees reflects this                                       Venues, 15 Options Execution Venues
                                                  of the top tiers for Industry Members                                          decision to recognize affiliations.                                            and 1,631 Industry Members (other than
                                                  (other than Execution Venue ATSs) are                                            The Operating Committee has                                                  Execution Venue ATSs) as of January
                                                  not identical to the top tier for                                              calculated the schedule of effective fees                                      2017.
                                                  Execution Venues, however, because the                                         for Industry Members (other than

                                                                                                    CALCULATION OF ANNUAL TIER FEES FOR INDUSTRY MEMBERS (‘‘IM’’)
                                                                                                                                                                                                                                        Percentage of
                                                                                                                                                                                                            Percentage of                                          Percentage
                                                                                                                                                                                                                                          industry
                                                                                                            Industry member tier                                                                              industry                                               of total
                                                                                                                                                                                                                                          member
                                                                                                                                                                                                              members                                               recovery
                                                                                                                                                                                                                                          recovery

                                                  Tier 1 ............................................................................................................................................                      0.500                        8.50              6.38
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                                                  Tier 2 ............................................................................................................................................                      2.500                       35.00             26.25

                                                    42 Note that all monthly, quarterly and annual                               Paid Annually’’ = ‘‘Monthly CAT Fee’’ × 12                                     ‘‘CAT Fees Paid Annually’’ = ‘‘Monthly CAT Fee’’
                                                  CAT Fees have been rounded to the nearest dollar.                              months).                                                                       × 12 months).
                                                    43 This column represents the approximate total                                44 This column represents the approximate total                                 45 This column represents the approximate total

                                                  CAT Fees paid each year by each Industry Member                                CAT Fees paid each year by each Execution Venue                                CAT Fees paid each year by each Execution Venue
                                                  (other than Execution Venue ATSs) (i.e., ‘‘CAT Fees                            for NMS Stocks and OTC Equity Securities (i.e.,                                for Listed Options (i.e., ‘‘CAT Fees Paid Annually’’
                                                                                                                                                                                                                = ‘‘Monthly CAT Fee’’ × 12 months).



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                                                  23450                                         Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices

                                                                                        CALCULATION OF ANNUAL TIER FEES FOR INDUSTRY MEMBERS (‘‘IM’’)—Continued
                                                                                                                                                                                                                                         Percentage of
                                                                                                                                                                                                             Percentage of                                          Percentage
                                                                                                                                                                                                                                           industry
                                                                                                             Industry member tier                                                                              industry                                               of total
                                                                                                                                                                                                                                           member
                                                                                                                                                                                                               members                                               recovery
                                                                                                                                                                                                                                           recovery

                                                  Tier   3   ............................................................................................................................................                  2.125                        21.25              15.94
                                                  Tier   4   ............................................................................................................................................                  4.625                        15.75              11.81
                                                  Tier   5   ............................................................................................................................................                  3.625                         7.75               5.81
                                                  Tier   6   ............................................................................................................................................                  4.000                         5.25               3.94
                                                  Tier   7   ............................................................................................................................................                 17.500                         4.50               3.38
                                                  Tier   8   ............................................................................................................................................                 20.125                         1.50               1.13
                                                  Tier   9   ............................................................................................................................................                 45.000                         0.50               0.38

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


                                                                                                                                                                                                                                                                Estimated number
                                                                                                                                                                                                                                                                        of
                                                                                                                                     Industry member tier                                                                                                            industry
                                                                                                                                                                                                                                                                    members

                                                  Tier   1   ..............................................................................................................................................................................................                   8
                                                  Tier   2   ..............................................................................................................................................................................................                  41
                                                  Tier   3   ..............................................................................................................................................................................................                  35
                                                  Tier   4   ..............................................................................................................................................................................................                  75
                                                  Tier   5   ..............................................................................................................................................................................................                  59
                                                  Tier   6   ..............................................................................................................................................................................................                  65
                                                  Tier   7   ..............................................................................................................................................................................................                 285
                                                  Tier   8   ..............................................................................................................................................................................................                 328
                                                  Tier   9   ..............................................................................................................................................................................................                 735

                                                         Total ........................................................................................................................................................................................                    1,631
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                                                                                               Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices                                                                           23451




                                                                                           CALCULATION OF ANNUAL TIER FEES FOR EQUITY EXECUTION VENUES (‘‘EV’’)
                                                                                                                                                                                                        Percentage of     Percentage     Percentage
                                                                                                                                                                                                            equity        of execution
                                                                                                      Equity execution venue tier                                                                                                          of total
                                                                                                                                                                                                          execution          venue        recovery
                                                                                                                                                                                                           venues           recovery

                                                  Tier 1 ............................................................................................................................................           25.00            26.00          6.50
                                                  Tier 2 ............................................................................................................................................           75.00            49.00         12.25
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                                                         Total ......................................................................................................................................             100               75         18.75
                                                                                                                                                                                                                                                       EN22MY17.023</GPH>




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                                                  23452                                        Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices

                                                                                                                                                                                                                                                          Estimated Number
                                                                                                                                                                                                                                                                  of
                                                                                                                             Equity Execution Venue Tier                                                                                                       Equity
                                                                                                                                                                                                                                                          Execution Venues

                                                  Tier 1 ..............................................................................................................................................................................................                     13
                                                  Tier 2 ..............................................................................................................................................................................................                     40

                                                         Total ........................................................................................................................................................................................                     53




                                                                                          CALCULATION OF ANNUAL TIER FEES FOR OPTIONS EXECUTION VENUES (‘‘EV’’)
                                                                                                                                                                                                            Percentage                 Percentage               Percentage
                                                                                                                                                                                                             of options                of execution
                                                                                                     Options execution venue tier                                                                                                                                 of total
                                                                                                                                                                                                             execution                    venue                  recovery
                                                                                                                                                                                                              venues                     recovery

                                                  Tier 1 ............................................................................................................................................                   75.00                       20.00              5.00
                                                  Tier 2 ............................................................................................................................................                   25.00                        5.00              1.25

                                                         Total ......................................................................................................................................                      100                            25           6.25


                                                                                                                                                                                                                                                           Estimated number
                                                                                                                                                                                                                                                                   of
                                                                                                                             Options execution venue tier                                                                                                       options
                                                                                                                                                                                                                                                           execution venues

                                                  Tier 1 ..............................................................................................................................................................................................                     11
                                                  Tier 2 ..............................................................................................................................................................................................                      4

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




                                                                                                                                                                                                             Estimated                   CAT fees
                                                                                                                                                                              Industry mem-                                                                        Total
                                                                                                          Type                                                                                               number of                     paid
                                                                                                                                                                                 ber tier                                                                        recovery
                                                                                                                                                                                                             members                     annually

                                                  Industry Members ............................................................................................              Tier    1   .............                       8                $404,016           $3,232,128
                                                                                                                                                                             Tier    2   .............                      41                 324,612           13,309,092
                                                                                                                                                                             Tier    3   .............                      35                 230,868            8,080,380
                                                                                                                                                                             Tier    4   .............                      75                  79,860            5,989,500
                                                                                                                                                                             Tier    5   .............                      59                  49,956            2,947,404
                                                                                                                                                                             Tier    6   .............                      65                  30,720            1,996,800
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                                                                                                                                                                             Tier    7   .............                     285                   6,012            1,713,420
                                                                                                                                                                             Tier    8   .............                     328                   1,740              570,720
                                                                                                                                                                                                                                                                                 EN22MY17.025</GPH>




                                                                                                                                                                             Tier    9   .............                     735                     264              194,040

                                                         Total ..........................................................................................................     ........................                  1,631        ........................    38,033,484

                                                  Equity Execution Venues ................................................................................                   Tier 1 .............                            13                 253,500           3,295,500
                                                                                                                                                                                                                                                                                 EN22MY17.024</GPH>




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                                                                                              Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices                                                                                                  23453

                                                                                                                                                                                                             Estimated                   CAT fees
                                                                                                                                                                              Industry mem-                                                                       Total
                                                                                                        Type                                                                                                 number of                     paid
                                                                                                                                                                                 ber tier                                                                       recovery
                                                                                                                                                                                                             members                     annually

                                                                                                                                                                             Tier 2 .............                             40                155,280           6,211,200

                                                        Total ..........................................................................................................      ........................                        53     ........................     9,506,700

                                                  Options Execution Venues ..............................................................................                    Tier 1 .............                             11                230,460           2,535,060
                                                                                                                                                                             Tier 2 .............                              4                158,448             633,792

                                                        Total ..........................................................................................................      ........................                        15     ........................     3,168,852

                                                              Total ..................................................................................................        ........................    ........................   ........................    50,709,036

                                                                     Excess 46        ....................................................................................    ........................    ........................   ........................         9,036



                                                  (F) Comparability of Fees                                                   model, the Operating Committee sought                                             aggregate fees that would be paid by
                                                    The funding principles require a                                          to take account of the affiliations                                               such firms.
                                                  funding model in which the fees                                             between or among CAT Reporters—that                                                 While the proposed fees for Tier 1 and
                                                  charged to the CAT Reporters with the                                       is, where affiliated entities may have                                            Tier 2 Industry Members are relatively
                                                  most CAT-related activity (measured by                                      multiple Industry Member and/or                                                   higher than those of Tier 1 and Tier 2
                                                  market share and/or message traffic, as                                     Execution Venue licenses, by                                                      Execution Venues, Execution Venue
                                                  applicable) are generally comparable                                        maintaining relative comparability of                                             complex fees are relatively higher than
                                                  (where, for these comparability                                             fees among such affiliations with the                                             those of Industry Member complexes
                                                  purposes, the tiered fee structure takes                                    most expected CAT-related activity. To                                            largely due to affiliations between
                                                  into consideration affiliations between                                     do this, the Participants identified                                              Execution Venues. The tables set forth
                                                  or among CAT Reporters, whether                                             representative affiliations in the largest                                        below describe the largest Execution
                                                  Execution Venue and/or Industry                                             tier of both Execution Venues and                                                 Venue and Industry Member complexes
                                                  Members). Accordingly, in creating the                                      Industry Members and compared the                                                 and their associated fees: 47

                                                                                                                                      EXECUTION VENUE COMPLEXES
                                                                                                                                                                  Listing of equity                                    Listing of options                       Total fees
                                                                             Execution venue complex                                                              execution venue                                      execution venue                            by EV
                                                                                                                                                                        tiers                                                  tier                              complex

                                                  Execution Venue Complex 1 ....................................................                       • Tier 1 (x2) ............................           •   Tier   1   (x4) ............................     $1,900,962
                                                                                                                                                       • Tier 2 (x1).                                       •   Tier   2   (x2).
                                                  Execution Venue Complex 2 ....................................................                       • Tier 1 (x2) ............................           •   Tier   1   (x2) ............................      1,863,801
                                                                                                                                                                                                            •   Tier   2   (x1).
                                                  Execution Venue Complex 3 ....................................................                       • Tier 1 (x2) ............................           •   Tier   1   (x2) ............................      1,278,447
                                                                                                                                                       • Tier 2 (x2).


                                                                                                                                      INDUSTRY MEMBER COMPLEXES
                                                                                                                                                                                                                                                                Total fees
                                                                                                                                                                  Listing of industry
                                                                             Industry member complex                                                                                                                 Listing of ATS tiers                         by IM
                                                                                                                                                                    member tiers                                                                                Complex

                                                  Industry Member Complex 1 ....................................................                       •   Tier   1   (x2) ............................     • Tier 2 (x1) ............................             $963,300
                                                  Industry Member Complex 2 ....................................................                       •   Tier   1   (x1) ............................     • Tier 2 (x3) ............................              949,674
                                                                                                                                                       •   Tier   4   (x1).
                                                  Industry Member Complex 3 ....................................................                       •   Tier   1   (x1) ............................     • Tier 2 (x1) ............................              883,888
                                                                                                                                                       •   Tier   2   (x1).
                                                  Industry Member Complex 4 ....................................................                       •   Tier   1   (x1) ............................     N/A ..........................................          808,472
                                                                                                                                                       •   Tier   2   (x1).
                                                                                                                                                       •   Tier   4   (x1).
                                                  Industry Member Complex 5 ....................................................                       •   Tier   2   (x1) ............................     • Tier 2 (x1) ............................              796,595
                                                                                                                                                       •   Tier   3   (x1).
                                                                                                                                                       •   Tier   4   (x1).
                                                                                                                                                       •   Tier   7   (x1).
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                                                  (G) Billing Onset                                                           implementation of the CAT, the                                                    Industry Members in a manner
                                                   Under Section 11.1(c) of the CAT                                           Company shall time the imposition and                                             reasonably related to the timing when
                                                  NMS Plan, to fund the development and                                       collection of all fees on Participants and                                        the Company expects to incur such

                                                    46 The amount in excess of the total CAT costs                              47 Note that the analysis of the complexes was                                  between the 1631 Industry Members may not be
                                                  will contribute to the gradual accumulation of the                          performed on a best efforts basis, as all affiliations                            included.
                                                  target operating reserve of $11.425 million.



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                                                  23454                            Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices

                                                  development and implementation costs.                     will evaluate the estimated ongoing                         In performing the tri-monthly
                                                  The Company is currently incurring                        CAT costs and the level of the operating                 reassignments, Nasdaq notes that the
                                                  such development and implementation                       reserve. To the extent that the total CAT                percentage of CAT Reporters in each
                                                  costs and will continue to do so prior                    costs decrease, the fees would be                        assigned tier is relative. Therefore, a
                                                  to the commencement of CAT reporting                      adjusted downward, and, to the extent                    CAT Reporter’s assigned tier will
                                                  and thereafter. For example, the Plan                     that the total CAT costs increase, the                   depend, not only on its own message
                                                  Processor has required up-front                           fees would be adjusted upward.48                         traffic or market share, but it also will
                                                  payments to begin building the CAT. In                    Furthermore, any surplus of the                          depend on the message traffic/market
                                                  addition, the Company continues to                        Company’s revenues over its expenses is                  share across all CAT Reporters. For
                                                  incur consultant and legal expenses on                    to be included within the operational                    example, the percentage of Industry
                                                  an on-going basis to implement the                        reserve to offset future fees. The                       Members (other than Execution Venue
                                                  CAT. Accordingly, the Operating                           limitations on more frequent changes to                  ATSs) in each tier is relative such that
                                                  Committee determined that all CAT                         the fee, however, are intended to                        such Industry Member’s assigned tier
                                                  Reporters, including both Industry                        provide budgeting certainty for the CAT                  will depend on message traffic
                                                  Members and Execution Venues                              Reporters and the Company.49 To the                      generated across all CAT Reporters as
                                                  (including Participants), would begin to                  extent that the Operating Committee                      well as the total number of CAT
                                                  be invoiced as promptly as possible                       approves changes to the number of tiers                  Reporters. The Operating Committee
                                                  following the establishment of a billing                  in the funding model or the fees                         will inform CAT Reporters of their
                                                  mechanism. Nasdaq will issue a                            assigned to each tier, then Nasdaq will                  assigned tier every three months
                                                  Circular to its members when the billing                  file such changes with the SEC pursuant                  following the periodic tiering process,
                                                  mechanism is established, specifying                      to Section 19(b) of the Exchange Act,                    as the funding model will compare an
                                                  the date when such invoicing of                           and any such changes will become                         individual CAT Reporter’s activity to
                                                  Industry Members will commence.                           effective in accordance with the                         that of other CAT Reporters in the
                                                                                                                                                                     marketplace.
                                                  (H) Changes to Fee Levels and Tiers                       requirements of Section 19(b).
                                                                                                                                                                        The following demonstrates a tier
                                                    Section 11.3(d) of the CAT NMS Plan                     (I) Initial and Periodic Tier                            reassignment. In accordance with the
                                                  states that ‘‘[t]he Operating Committee                   Reassignments                                            funding model, the top 75% of Options
                                                  shall review such fee schedule on at                                                                               Execution Venues in market share are
                                                  least an annual basis and shall make any                     The Operating Committee has                           categorized as Tier 1 while the bottom
                                                  changes to such fee schedule that it                      determined to calculate fee tiers every                  25% of Options Execution Venues in
                                                  deems appropriate. The Operating                          three months based on market share or                    market share are categorized as Tier 2.
                                                  Committee is authorized to review such                    message traffic, as applicable, from the                 In the sample scenario below, Options
                                                  fee schedule on a more regular basis, but                 prior three months. For the initial tier                 Execution Venue L is initially
                                                  shall not make any changes on more                        assignments, the Company will                            categorized as a Tier 2 Options
                                                  than a semi-annual basis unless,                          calculate the relevant tier for each CAT                 Execution Venue in Period A due to its
                                                  pursuant to a Supermajority Vote, the                     Reporter using the three months of data                  market share. When market share is
                                                  Operating Committee concludes that                        prior to the commencement date. As                       recalculated for Period B, the market
                                                  such change is necessary for the                          with the initial tier assignment, for the                share of Execution Venue L increases,
                                                  adequate funding of the Company.’’                        tri-monthly reassignments, the                           and it is therefore subsequently
                                                  With such reviews, the Operating                          Company will calculate the relevant tier                 reranked and reassigned to Tier 1 in
                                                  Committee will review the distribution                    using the three months of data prior to                  Period B. Correspondingly, Options
                                                  of Industry Members and Execution                         the relevant tri-monthly date. Nasdaq                    Execution Venue K, initially a Tier 1
                                                  Venues across tiers, and make any                         notes that any movement of CAT                           Options Execution Venue in Period A,
                                                  updates to the percentage of CAT                          Reporters between tiers will not change                  is reassigned to Tier 2 in Period B due
                                                  Reporters allocated to each tier as may                   the criteria for each tier or the fee                    to decreases in its market share of share
                                                  be necessary. In addition, the reviews                    amount corresponding to each tier.                       volume.

                                                                                                             TABLE II.C–2—2014 ACTUAL SUPPLY
                                                                                                                                  [Million RINs]

                                                                                       Period A                                                                                 Period B

                                                                                                     Market                                                                                   Market
                                                        Options execution venue                                            Tier                    Options execution venue                                 Tier
                                                                                                   share rank                                                                               share rank

                                                  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
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                                                  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

                                                    48 The CAT Fees are designed to recover the costs       such as any changes in costs related to the               49 Section B.7, Appendix C of the CAT NMS Plan,

                                                  associated with the CAT. Accordingly, CAT Fees            retirement of existing regulatory systems, such as       Approval Order at 85006.
                                                  would not be affected by increases or decreases in        OATS.
                                                  other non-CAT expenses incurred by the SROs,



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                                                                                    Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices                                                                23455

                                                                                                        TABLE II.C–2—2014 ACTUAL SUPPLY—Continued
                                                                                                                                            [Million RINs]

                                                                                        Period A                                                                                         Period B

                                                                                                      Market                                                                                            Market
                                                        Options execution venue                                                      Tier                    Options execution venue                                  Tier
                                                                                                    share rank                                                                                        share rank

                                                  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



                                                  (3) Proposed CAT Fee Schedule                               Plan. Paragraph (a)(5) defines an                                the same fees that Participants that trade
                                                    Nasdaq proposes the Consolidated                          ‘‘Equity Execution Venue’’ as an                                 NMS Stocks and/or OTC Equity
                                                  Audit Trail Funding Fees to implement                       Execution Venue that trades NMS                                  Securities will pay. Specifically,
                                                  the CAT Fees determined by the                              Stocks and/or OTC Equity Securities.                             paragraph (b)(2) states that the Company
                                                  Operating Committee on Nasdaq’s                                                                                              will assign each Equity ATS to a fee tier
                                                                                                              (B) Fee Schedule
                                                  Industry Members. The proposed fee                                                                                           once every quarter, where such tier
                                                                                                                 Nasdaq proposes to impose the CAT                             assignment is calculated by ranking
                                                  schedule has three sections, covering                       Fees applicable to its Industry Members
                                                  definitions, the fee schedule for CAT                                                                                        each Equity Execution Venue based on
                                                                                                              through paragraph (b) of the proposed                            its total market share of NMS Stocks and
                                                  Fees, and the timing and manner of                          fee schedule. Paragraph (b)(1) of the
                                                  payments. Each of these sections is                                                                                          OTC Equity Securities for the three
                                                                                                              proposed fee schedule sets forth the                             months prior to the quarterly tier
                                                  discussed in detail below.                                  CAT Fees applicable to Industry                                  calculation day and assigning each
                                                  (A) Definitions                                             Members other than Equity ATSs.                                  Equity Execution Venue to a tier based
                                                     Paragraph (a) of the proposed fee                        Specifically, paragraph (b)(1) states that                       on that ranking and predefined Equity
                                                  schedule sets forth the definitions for                     the Company will assign each Industry                            Execution Venue percentages. The
                                                  the proposed fee schedule. Paragraph                        Member (other than an Equity ATS) to                             Equity Execution Venues with the
                                                                                                              a fee tier once every quarter, where such                        higher total quarterly market share will
                                                  (a)(1) states that, for purposes of the
                                                                                                              tier assignment is calculated by ranking                         be ranked in Tier 1, and the Equity
                                                  Consolidated Audit Trail Funding Fees,
                                                                                                              each Industry Member based on its total                          Execution Venues with the lower
                                                  the terms ‘‘CAT NMS Plan,’’ ‘‘Industry
                                                                                                              message traffic for the three months                             quarterly market share will be ranked in
                                                  Member,’’ ‘‘NMS Stock,’’ ‘‘OTC Equity
                                                                                                              prior to the quarterly tier calculation                          Tier 2. Specifically, paragraph (b)(2)
                                                  Security’’, and ‘‘Participant’’ are defined
                                                                                                              day and assigning each Industry                                  states that, each quarter, each Equity
                                                  as set forth in Rule 6810 and Chapter IX,
                                                                                                              Member to a tier based on that ranking                           ATS shall pay the following CAT Fee
                                                  Section 8(a) (Consolidated Audit Trail—
                                                                                                              and predefined Industry Member                                   corresponding to the tier assigned by the
                                                  Definitions), respectively.
                                                                                                              percentages. The Industry Members                                Company for such Equity ATS for that
                                                     The proposed fee schedule imposes
                                                                                                              with the highest total quarterly message                         quarter:
                                                  different fees on Equity ATSs and
                                                                                                              traffic will be ranked in Tier 1, and the
                                                  Industry Members that are not Equity
                                                                                                              Industry Members with lowest quarterly                                                  Percentage
                                                  ATSs. Accordingly, the proposed fee                                                                                                                  of equity    Quarterly
                                                                                                              message traffic will be ranked in Tier 9.                               Tier
                                                  schedule defines the term ‘‘Equity                                                                                                                   execution    CAT fee
                                                                                                              Each quarter, each Industry Member
                                                  ATS.’’ First, paragraph (a)(2) defines an                                                                                                             venues
                                                                                                              (other than an Equity ATS) shall pay the
                                                  ‘‘ATS’’ to mean an alternative trading
                                                                                                              following CAT Fee corresponding to the                           1 ................           25.00      $63,375
                                                  system as defined in Rule 300(a) of
                                                                                                              tier assigned by the Company for such                            2 ................           75.00       38,820
                                                  Regulation ATS under the Securities
                                                                                                              Industry Member for that quarter:
                                                  Exchange Act of 1934, as amended, that
                                                  operates pursuant to Rule 301 of                                                                                             (C) Timing and Manner of Payment
                                                                                                                                       Percentage of
                                                  Regulation ATS. This is the same                                                                                Quarterly      Section 11.4 of the CAT NMS Plan
                                                                                                                     Tier                industry
                                                  definition of an ATS as set forth in                                                                            CAT fee      states that the Operating Committee
                                                                                                                                         members
                                                  Section 1.1 of the CAT NMS Plan in the                                                                                       shall establish a system for the
                                                  definition of an ‘‘Execution Venue.’’                       1   ................                   0.500          $101,004   collection of fees authorized under the
                                                  Then, paragraph (a)(4) defines an                           2   ................                   2.500            81,153   CAT NMS Plan. The Operating
                                                                                                              3   ................                   2.125            57,717   Committee may include such collection
                                                  ‘‘Equity ATS’’ as an ATS that executes                      4   ................                   4.625            19,965
                                                  transactions in NMS Stocks and/or OTC                       5   ................                   3.625            12,489   responsibility as a function of the Plan
                                                  Equity Securities.                                          6   ................                   4.000             7,680   Processor or another administrator. To
                                                     Paragraph (a)(3) of the proposed fee                     7   ................                  17.500             1,503   implement the payment process to be
                                                  schedule defines the term ‘‘CAT Fee’’ to                    8   ................                  20.125               435   adopted by the Operating Committee,
                                                  mean the Consolidated Audit Trail                           9   ................                  45.000                66   paragraph (c)(1) of the proposed fee
                                                  Funding Fee(s) to be paid by Industry                                                                                        schedule states that the Company will
                                                  Members as set forth in paragraph (b) in                      Paragraph (b)(2) of the proposed fee                           provide each Industry Member with one
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                                                  the proposed fee schedule.                                  schedule sets forth the CAT Fees                                 invoice each quarter for its CAT Fees as
                                                     Finally, Paragraph (a)(6) defines an                     applicable to Equity ATSs.50 These are                           determined pursuant to paragraph (b) of
                                                  ‘‘Execution Venue’’ as a Participant or                                                                                      the proposed fee schedule, regardless of
                                                                                                                50 Note that no fee schedule is provided for
                                                  an ATS (excluding any such ATS that                                                                                          whether the Industry Member is a
                                                                                                              Execution Venue ATSs that execute transactions in
                                                  does not execute orders). This definition                   Listed Options, as no such Execution Venue ATSs
                                                                                                                                                                               member of multiple self-regulatory
                                                  is the same substantive definition as set                   currently exist due trading restrictions related to              organizations. Paragraph (c)(1) further
                                                  forth in Section 1.1 of the CAT NMS                         Listed Options.                                                  states that each Industry Member will


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                                                  23456                             Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices

                                                  pay its CAT Fees to the Company via                       of the Act,52 in general, and furthers the            the fees and the CAT costs, Nasdaq
                                                  the centralized system for the collection                 objectives of Sections 6(b)(4) and 6(b)(5)            believes that the total level of the CAT
                                                  of CAT Fees established by the                            of the Act,53 in particular, in that it               Fees is reasonable.
                                                  Company in the manner prescribed by                       provides for the equitable allocation of                 In addition, the Exchange believes
                                                  the Company. Nasdaq will provide                          reasonable dues, fees and other charges               that the proposed CAT Fees are
                                                  Industry Members with details                             among members and issuers and other                   reasonably designed to allocate the total
                                                  regarding the manner of payment of                        persons using any facility, is not                    costs of the CAT equitably between and
                                                  CAT Fees by Circular.                                     designed to permit unfair                             among the Participants and Industry
                                                     Although the exact fee collection                      discrimination between customers,                     Members, and are therefore not unfairly
                                                  system and processes for CAT fees has                     issuers, brokers, or dealers, and is                  discriminatory. As discussed in detail
                                                  not yet been established, all CAT fees                    designed to prevent fraudulent and                    above, the proposed tiered fees impose
                                                  will be billed and collected centrally                    manipulative acts and practices, to                   comparable fees on similarly situated
                                                  through the Company, via the Plan                         promote just and equitable principles of              CAT Reporters. For example, those with
                                                  Processor or otherwise. Although each                     trade, and, in general, to protect                    a larger impact on the CAT (measured
                                                  Participant will adopt its own fee                        investors and the public interest.                    via message traffic or market share) pay
                                                  schedule regarding CAT Fees, no CAT                          As discussed above, the SEC                        higher fees, whereas CAT Reporters
                                                  Fees or portion thereof will be collected                 approved the bifurcated, tiered, fixed                with a smaller impact pay lower fees.
                                                  by the individual Participants. Each                      fee funding model in the CAT NMS                      Correspondingly, the tiered structure
                                                  Industry Member will receive from the                     Plan, finding it was reasonable and that              lessens the impact on smaller CAT
                                                  Company one invoice for its applicable                    it equitably allocated fees among                     Reporters by imposing smaller fees on
                                                  CAT fees, not separate invoices from                      Participants and Industry Members. The                those CAT Reporters with less market
                                                  each Participant of which it is a                         Exchange believes that the proposed                   share or message traffic. In addition, the
                                                  member. The Industry Members will                         tiered fees adopted pursuant to the                   funding model takes into consideration
                                                  pay the CAT Fees to the Company via                       funding model approved by the SEC in                  affiliations between CAT Reporters,
                                                  the centralized system for the collection                 the CAT NMS Plan are reasonable,                      imposing comparable fees on such
                                                  of CAT fees established by the                            equitably allocated and not unfairly                  affiliated entities.
                                                                                                            discriminatory.                                          Moreover, Nasdaq believes that the
                                                  Company.51
                                                                                                               Nasdaq believes that this proposal is              division of the total CAT costs between
                                                     Section 11.4 of the CAT NMS Plan                       consistent with the Act because it                    Industry Members and Execution
                                                  also states that Participants shall require               implements, interprets or clarifies the               Venues, and the division of the
                                                  each Industry Member to pay all                           provisions of the Plan, and is designed               Execution Venue portion of total costs
                                                  applicable authorized CAT Fees within                     to assist the Exchange and its Industry               between Equity and Options Execution
                                                  thirty days after receipt of an invoice or                Members in meeting regulatory                         Venues, is reasonably designed to
                                                  other notice indicating payment is due                    obligations pursuant to the Plan. In                  allocate CAT costs among CAT
                                                  (unless a longer payment period is                        approving the Plan, the SEC noted that                Reporters. The 75/25 division between
                                                  otherwise indicated). Section 11.4                        the Plan ‘‘is necessary and appropriate               Industry Members and Execution
                                                  further states that, if an Industry                       in the public interest, for the protection            Venues maintains the greatest level of
                                                  Member fails to pay any such fee when                     of investors and the maintenance of fair              comparability across the funding model,
                                                  due, such Industry Member shall pay                       and orderly markets, to remove                        keeping in view that comparability
                                                  interest on the outstanding balance from                  impediments to, and perfect the                       should consider affiliations among or
                                                  such due date until such fee is paid at                   mechanism of a national market system,                between CAT Reporters (e.g., firms with
                                                  a per annum rate equal to the lesser of:                  or is otherwise in furtherance of the                 multiple Industry Members or exchange
                                                  (i) The Prime Rate plus 300 basis points;                 purposes of the Act.’’ 54 To the extent               licenses). Similarly, the 75/25 division
                                                  or (ii) the maximum rate permitted by                     that this proposal implements,                        between Equity and Options Execution
                                                  applicable law. Therefore, in accordance                  interprets or clarifies the Plan and                  Venues maintains elasticity across the
                                                  with Section 11.4 of the CAT NMS Plan,                    applies specific requirements to                      funding model as well as the greatest
                                                  Nasdaq proposed to adopt paragraph                        Industry Members, Nasdaq believes that                level of fee equitability and
                                                  (c)(2) of the proposed fee schedule.                      this proposal furthers the objectives of              comparability based on the current
                                                  Paragraph (c)(2) of the proposed fee                      the Plan, as identified by the SEC, and               number of Equity and Options
                                                  schedule states that each Industry                        is therefore consistent with the Act.                 Execution Venues.
                                                  Member shall pay CAT Fees within                             Nasdaq believes that the proposed                     Finally, Nasdaq believes that the
                                                  thirty days after receipt of an invoice or                tiered fees are reasonable. First, the total          proposed fees are reasonable because
                                                  other notice indicating payment is due                    CAT Fees to be collected would be                     they would provide ease of calculation,
                                                  (unless a longer payment period is                        directly associated with the costs of                 ease of billing and other administrative
                                                  otherwise indicated). If an Industry                      establishing and maintaining the CAT,                 functions, and predictability of a fixed
                                                  Member fails to pay any such fee when                     where such costs include Plan Processor               fee. Such factors are crucial to
                                                  due, such Industry Member shall pay                       costs and costs related to insurance,                 estimating a reliable revenue stream for
                                                  interest on the outstanding balance from                  third party services and the operational              the Company and for permitting CAT
                                                  such due date until such fee is paid at                   reserve. The CAT Fees would not cover                 Reporters to reasonably predict their
                                                  a per annum rate equal to the lesser of:                  Participant services unrelated to the                 payment obligations for budgeting
                                                  (i) The Prime Rate plus 300 basis points;                 CAT. In addition, any surplus CAT Fees                purposes.
                                                  or (ii) the maximum rate permitted by
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                                                                                                            cannot be distributed to the individual
                                                  applicable law.                                                                                                 B. Self-Regulatory Organization’s
                                                                                                            Participants; such surpluses must be
                                                                                                                                                                  Statement on Burden on Competition
                                                  2. Statutory Basis                                        used as a reserve to offset future fees.
                                                                                                            Given the direct relationship between                   Section 6(b)(8) of the Act 55 requires
                                                    The Exchange believes that its                                                                                that SRO rules not impose any burden
                                                  proposal is consistent with Section 6(b)                   52 15U.S.C. 78f(b).                                  on competition that is not necessary or
                                                                                                             53 15U.S.C. 78f(b)(4) and (5).
                                                    51 Section   11.4 of the CAT NMS Plan.                   54 Approval Order at 84697.                            55 15   U.S.C. 78f(b)(8).



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                                                                                  Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices                                                     23457

                                                  appropriate. Nasdaq does not believe                    C. Self-Regulatory Organization’s                       those that may be withheld from the
                                                  that the proposed rule change will result               Statement on Comments on the                            public in accordance with the
                                                  in any burden on competition that is not                Proposed Rule Change Received From                      provisions of 5 U.S.C. 552, will be
                                                  necessary or appropriate in furtherance                 Members, Participants, or Others                        available for Web site viewing and
                                                  of the purposes of the Act. Nasdaq notes                  No written comments were either                       printing in the Commission’s Public
                                                  that the proposed rule change                           solicited or received.                                  Reference Room, 100 F Street NE.,
                                                  implements provisions of the CAT NMS                                                                            Washington, DC 20549, on official
                                                                                                          III. Date of Effectiveness of the                       business days between the hours of
                                                  Plan approved by the Commission, and
                                                                                                          Proposed Rule Change and Timing for                     10:00 a.m. and 3:00 p.m. Copies of the
                                                  is designed to assist Nasdaq in meeting                 Commission Action
                                                  its regulatory obligations pursuant to the                                                                      filing also will be available for
                                                  Plan. Similarly, all national securities                   The foregoing rule change has become                 inspection and copying at the principal
                                                  exchanges and FINRA are proposing                       effective pursuant to Section                           office of the Exchange. All comments
                                                                                                          19(b)(3)(A)(ii) of the Act.56 At any time               received will be posted without change;
                                                  this proposed fee schedule to
                                                                                                          within 60 days of the filing of the                     the Commission does not edit personal
                                                  implement the requirements of the CAT
                                                                                                          proposed rule change, the Commission                    identifying information from
                                                  NMS Plan. Therefore, this is not a                      summarily may temporarily suspend                       submissions. You should submit only
                                                  competitive fee filing and, therefore, it               such rule change if it appears to the                   information that you wish to make
                                                  does not raise competition issues                       Commission that such action is (i)                      available publicly. All submissions
                                                  between and among the exchanges and                     necessary or appropriate in the public                  should refer to File Number SR–
                                                  FINRA.                                                  interest; (ii) for the protection of                    NASDAQ–2017–046, and should be
                                                     Moreover, as previously described,                   investors; or (iii) otherwise in                        submitted on or before June 12, 2017.
                                                  Nasdaq believes that the proposed rule                  furtherance of the purposes of the Act.                   For the Commission, by the Division of
                                                  change fairly and equitably allocates                   If the Commission takes such action, the                Trading and Markets, pursuant to delegated
                                                  costs among CAT Reporters. In                           Commission shall institute proceedings                  authority.57
                                                  particular, the proposed fee schedule is                to determine whether the proposed rule                  Eduardo A. Aleman,
                                                  structured to impose comparable fees on                 should be approved or disapproved.                      Assistant Secretary.
                                                  similarly situated CAT Reporters, and                   IV. Solicitation of Comments                            [FR Doc. 2017–10300 Filed 5–19–17; 8:45 am]
                                                  lessen the impact on smaller CAT                          Interested persons are invited to                     BILLING CODE 8011–01–P
                                                  Reporters. CAT Reporters with similar                   submit written data, views, and
                                                  levels of CAT activity will pay similar                 arguments concerning the foregoing,
                                                  fees. For example, Industry Members                     including whether the proposed rule                     SECURITIES AND EXCHANGE
                                                  (other than Execution Venue ATSs) with                  change is consistent with the Act.                      COMMISSION
                                                  higher levels of message traffic will pay               Comments may be submitted by any of                     [Release No. 34–80698; File No. SR–
                                                  higher fees, and those with lower levels                the following methods:                                  NYSEARCA–2017–52]
                                                  of message traffic will pay lower fees.
                                                                                                          Electronic Comments
                                                  Similarly, Execution Venue ATSs and                                                                             Self-Regulatory Organizations; NYSE
                                                  other Execution Venues with larger                        • Use the Commission’s Internet                       Arca, Inc.; Notice of Filing and
                                                  market share will pay higher fees, and                  comment form (http://www.sec.gov/                       Immediate Effectiveness of Proposed
                                                  those with lower levels of market share                 rules/sro.shtml); or                                    Rule Change Amending the NYSE Arca
                                                                                                            • Send an email to rule-comments@                     Equities Schedule of Fees and
                                                  will pay lower fees. Therefore, given
                                                                                                          sec.gov. Please include File Number SR–                 Charges for Exchange Services, and
                                                  that there is generally a relationship
                                                                                                          NASDAQ–2017–046 on the subject line.                    the NYSE Arca Schedule of Options
                                                  between message traffic and market
                                                  share to the CAT Reporter’s size, smaller               Paper Comments                                          Fees and Charges To Adopt the Fees
                                                  CAT Reporters generally pay less than                      • Send paper comments in triplicate                  for Industry Members Related to the
                                                  larger CAT Reporters. Accordingly, the                  to Secretary, Securities and Exchange                   National Market System Plan
                                                  Exchange does not believe that the CAT                  Commission, 100 F Street NE.,                           Governing the Consolidated Audit Trail
                                                  Fees would have a disproportionate                      Washington, DC 20549–1090.                              May 16, 2017.
                                                  effect on smaller or larger CAT                         All submissions should refer to File                       Pursuant to Section 19(b)(1) 1 of the
                                                  Reporters. In addition, ATSs and                        Number SR–NASDAQ–2017–046. This                         Securities Exchange Act of 1934 (the
                                                  exchanges will pay the same fees based                  file number should be included on the                   ‘‘Act’’) 2 and Rule 19b–4 thereunder,3
                                                  on market share. Therefore, Nasdaq does                 subject line if email is used. To help the              notice is hereby given that, on May 10,
                                                  not believe that the fees will impose any               Commission process and review your                      2017, NYSE Arca, Inc. (the ‘‘Exchange’’
                                                  burden on the competition between                       comments more efficiently, please use                   or ‘‘NYSE Arca’’) filed with the
                                                  ATSs and exchanges. Accordingly,                        only one method. The Commission will                    Securities and Exchange Commission
                                                  Nasdaq believes that the proposed fees                  post all comments on the Commission’s                   (the ‘‘Commission’’) the proposed rule
                                                  will minimize the potential for adverse                 Internet Web site (http://www.sec.gov/                  change as described in Items I, II, and
                                                  effects on competition between CAT                      rules/sro.shtml). Copies of the                         III below, which Items have been
                                                  Reporters in the market.                                submission, all subsequent                              prepared by the self-regulatory
                                                                                                          amendments, all written statements                      organization. The Commission is
                                                     Furthermore, the tiered, fixed fee                   with respect to the proposed rule                       publishing this notice to solicit
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                                                  funding model limits the disincentives                  change that are filed with the                          comments on the proposed rule change
                                                  to providing liquidity to the market.                   Commission, and all written                             from interested persons.
                                                  Therefore, the proposed fees are                        communications relating to the
                                                  structured to limit burdens on                          proposed rule change between the                          57 17 CFR 200.30–3(a)(12).
                                                  competitive quoting and other liquidity                 Commission and any person, other than                     1 15 U.S.C. 78s(b)(1).
                                                  provision in the market.                                                                                          2 15 U.S.C. 78a.
                                                                                                           56 15   U.S.C. 78s(b)(3)(A)(ii).                         3 17 CFR 240.19b–4.




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Document Created: 2018-11-08 08:50:23
Document Modified: 2018-11-08 08:50:23
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation82 FR 23439 

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