82_FR_25508 82 FR 25404 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Establish the Fees for Industry Members Related to the National Market System Plan Governing the Consolidated Audit Trail

82 FR 25404 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Establish the Fees for Industry Members Related to the National Market System Plan Governing the Consolidated Audit Trail

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 104 (June 1, 2017)

Page Range25404-25423
FR Document2017-11361

Federal Register, Volume 82 Issue 104 (Thursday, June 1, 2017)
[Federal Register Volume 82, Number 104 (Thursday, June 1, 2017)]
[Notices]
[Pages 25404-25423]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-11361]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80785; File No. SR-CBOE-2017-040]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Establish the Fees for Industry Members Related 
to the National Market System Plan Governing the Consolidated Audit 
Trail

May 26, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on May 16, 2017, Chicago Board Options Exchange, Incorporated (the 
``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``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 its Fees Schedule to establish the 
fees for Industry Members related to the CAT NMS Plan. The text of the 
proposed rule change is available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's 
Office of the Secretary, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    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\ 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

[[Page 25405]]

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, CBOE submits this fee filing to propose the 
Consolidated Audit Trail Funding Fees, which will require Industry 
Members that are CBOE Trading Permit Holders 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 Rel. No. 80248 (Mar. 15, 2017), 82 FR 14547 (Mar. 21, 2017); 
Securities Exchange Act Rel. No. 80326 (Mar. 29, 2017), 82 FR 16460 
(Apr. 4, 2017); and Securities Exchange Act Rel. No. 80325 (Mar. 29, 
2017), 82 FR 16445 (Apr. 4, 2017).
    \4\ National Stock Exchange, Inc. has been renamed NYSE 
National, Inc. See Securities Exchange Act Rel. No. 79902 (Jan. 30, 
2017), 82 FR 9258 (Feb. 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 Rel. No. 77724 (Apr. 27, 2016), 81 
FR 30614 (May 17, 2016).
    \9\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81 
FR 84696 (Nov. 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 
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. CBOE will issue a Regulatory 
Circular to Trading Permit Holders when the billing mechanism is 
established, specifying the date when such invoicing of Industry 
Members

[[Page 25406]]

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.
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    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 self-regulatory 
organizations (``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 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

[[Page 25407]]

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. CBOE 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 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

[[Page 25408]]

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 25409]]

[GRAPHIC] [TIFF OMITTED] TN01JN17.008


------------------------------------------------------------------------
                                                        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 25410]]

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 (Mar. 7, 
2016). This exemption applies to Options Market Maker quotes for CAT 
reporting purposes only. Therefore, notwithstanding the reporting 
exemption provided for Options Market Maker quotes, Options Market 
Maker quotes will be included in the calculation of total message 
traffic for Options Market Makers for purposes of tiering under the 
CAT funding model both prior to CAT reporting and once CAT reporting 
commences.
    \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 25411]]

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
                                                             share of
               Equity Execution Venue tier                 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 with 
regard to Industry Members (other

[[Page 25412]]

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 between 
Industry Members and

[[Page 25413]]

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.

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

[[Page 25414]]

 
    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\
---------------------------------------------------------------------------

    \41\ This $5,000,000 represents the gradual accumulation of the 
funds for a target operating reserve of $11,425,000.
    \42\ Note that all monthly, quarterly and annual CAT Fees have 
been rounded to the nearest dollar.
---------------------------------------------------------------------------

    For Industry Members (other than Execution VenueATSs):
---------------------------------------------------------------------------

    \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:

----------------------------------------------------------------------------------------------------------------
                                                                    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: 
---------------------------------------------------------------------------

    \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).
    \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
                                                                      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

[[Page 25415]]

 
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
------------------------------------------------------------------------

 BILLING CODE 8011-01-P

[[Page 25416]]

[GRAPHIC] [TIFF OMITTED] TN01JN17.009

 BILLING CODE 8011-01-P

[[Page 25417]]



                      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
----------------------------------------------------------------------------------------------------------------


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

                                                          [GRAPHIC] [TIFF OMITTED] TN01JN17.010
                                                          

----------------------------------------------------------------------------------------------------------------
                                                                   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 of
              Options Execution Venue tier                    Options
                                                             Execution
                                                              Venues
------------------------------------------------------------------------
Tier 1..................................................              11
Tier 2..................................................               4
                                                         ---------------
    Total...............................................              15
------------------------------------------------------------------------


                                         Traceability of Total CAT Fees
----------------------------------------------------------------------------------------------------------------
                                                                     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

[[Page 25418]]

 
                                      Tier 9....................             735             264         194,040
                                                                 -----------------------------------------------
    Total...........................  ..........................           1,631  ..............      38,033,484
----------------------------------------------------------------------------------------------------------------
Equity Execution Venues.............  Tier 1....................              13         253,500       3,295,500
                                      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

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

    \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.
---------------------------------------------------------------------------

    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)......
----------------------------------------------------------------------------------------------------------------


[[Page 25419]]

(G) Billing Onset

    Under Section 11.1(c) of the CAT NMS Plan, to fund the development 
and implementation of the CAT, the Company shall time the imposition 
and collection of all fees on Participants and Industry Members in a 
manner reasonably related to the timing when the Company expects to 
incur such development and implementation costs. The Company is 
currently incurring such development and implementation costs and will 
continue to do so prior to the commencement of CAT reporting and 
thereafter. 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. CBOE will 
issue a Regulatory Circular to Trading Permit Holders 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 CBOE 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. CBOE 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, CBOE 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.

----------------------------------------------------------------------------------------------------------------
                           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 25420]]

 
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
    CBOE proposes the Consolidated Audit Trail Funding Fees to 
implement the CAT Fees determined by the Operating Committee on CBOE'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 
6.85 (Consolidated Audit Trail (CAT) Compliance Rule--Definitions)
    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

    CBOE 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.

[[Page 25421]]



------------------------------------------------------------------------
                                           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 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. CBOE will provide Industry Members with details regarding the 
manner of payment of CAT Fees by Regulatory 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, 
CBOE proposes 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

    CBOE believes that the proposed rule change is consistent with the 
provisions of Section 6(b)(5) of the Act,\52\ which require, among 
other things, that CBOE rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest, and not designed to permit unfair discrimination 
between customers, issuers, brokers and dealers, and Section 6(b)(4) of 
the Act,\53\ which requires that CBOE rules provide for the equitable 
allocation of reasonable dues, fees, and other charges among members 
and issuers and other persons using its facilities. 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. CBOE 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.
---------------------------------------------------------------------------

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

    CBOE 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 CBOE 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, CBOE 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.
---------------------------------------------------------------------------

    CBOE 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, CBOE 
believes that the total level of the CAT Fees is reasonable.
    In addition, CBOE 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

[[Page 25422]]

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, CBOE 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, CBOE 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\ require that CBOE rules not impose 
any burden on competition that is not necessary or appropriate. CBOE 
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. CBOE notes that the proposed 
rule change implements provisions of the CAT NMS Plan approved by the 
Commission, and is designed to assist CBOE 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, CBOE 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, CBOE 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, CBOE does not 
believe that the fees will impose any burden on the competition between 
ATSs and exchanges. Accordingly, CBOE 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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \56\ and paragraph (f) of Rule 19b-4 \57\ 
thereunder. 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 necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78s(b)(3)(A).
    \57\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-CBOE-2017-040 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-CBOE-2017-040. 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-CBOE-2017-040 and should be 
submitted on or before June 22, 2017.


[[Page 25423]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\58\
---------------------------------------------------------------------------

    \58\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-11361 Filed 5-31-17; 8:45 am]
 BILLING CODE 8011-01-P



                                                  25404                          Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices

                                                  III. Date of Effectiveness of the                       office of the Exchange. All comments                  II. Self-Regulatory Organization’s
                                                  Proposed Rule Change and Timing for                     received will be posted without change;               Statement of the Purpose of, and
                                                  Commission Action                                       the Commission does not edit personal                 Statutory Basis for, the Proposed Rule
                                                     Within 45 days of the date of                        identifying information from                          Change
                                                  publication of this notice in the Federal               submissions. You should submit only                      In its filing with the Commission, the
                                                  Register or within such longer period (i)               information that you wish to make                     Exchange included statements
                                                  as the Commission may designate up to                   available publicly. All submissions                   concerning the purpose of and basis for
                                                  90 days of such date if it finds such                   should refer to File Number SR–IEX–                   the proposed rule change and discussed
                                                  longer period to be appropriate and                     2017–18, and should be submitted on or                any comments it received on the
                                                  publishes its reasons for so finding or                 before June 22, 2017.                                 proposed rule change. The text of these
                                                  (ii) as to which the Exchange consents,                   For the Commission, by the Division of              statements may be examined at the
                                                  the Commission shall: (a) By order                      Trading and Markets, pursuant to delegated            places specified in Item IV below. The
                                                  approve or disapprove such proposed                     authority.32                                          Exchange has prepared summaries, set
                                                  rule change, or (b) institute proceedings               Eduardo A. Aleman,                                    forth in sections A, B, and C below, of
                                                  to determine whether the proposed rule                  Assistant Secretary.                                  the most significant aspects of such
                                                  change should be disapproved.                           [FR Doc. 2017–11364 Filed 5–31–17; 8:45 am]           statements.
                                                  IV. Solicitation of Comments                            BILLING CODE 8011–01–P                                A. Self-Regulatory Organization’s
                                                                                                                                                                Statement of the Purpose of, and
                                                    Interested persons are invited to                                                                           Statutory Basis for, the Proposed Rule
                                                  submit written data, views, and                         SECURITIES AND EXCHANGE                               Change
                                                  arguments concerning the foregoing,                     COMMISSION
                                                  including whether the proposed rule                                                                           1. Purpose
                                                  change is consistent with the Act.                      [Release No. 34–80785; File No. SR–CBOE–
                                                                                                                                                                   Bats BYX Exchange, Inc., Bats BZX
                                                  Comments may be submitted by any of                     2017–040]
                                                                                                                                                                Exchange, Inc., Bats EDGA Exchange,
                                                  the following methods:                                  Self-Regulatory Organizations;                        Inc., Bats EDGX Exchange, Inc., BOX
                                                  Electronic Comments                                     Chicago Board Options Exchange,                       Options Exchange LLC, C2 Options
                                                                                                          Incorporated; Notice of Filing and                    Exchange, Incorporated, Chicago Board
                                                    • Use the Commission’s Internet                                                                             Options Exchange, Incorporated,
                                                  comment form (http://www.sec.gov/                       Immediate Effectiveness of a Proposed
                                                                                                          Rule Change To Establish the Fees for                 Chicago Stock Exchange, Inc., Financial
                                                  rules/sro.shtml); or                                                                                          Industry Regulatory Authority, Inc.
                                                    • Send an email to rule-comments@                     Industry Members Related to the
                                                                                                          National Market System Plan                           (‘‘FINRA’’), Investors’ Exchange LLC,
                                                  sec.gov. Please include File Number SR–                                                                       Miami International Securities
                                                  IEX–2017–18 on the subject line.                        Governing the Consolidated Audit Trail
                                                                                                                                                                Exchange, LLC, MIAX PEARL, LLC,
                                                  Paper Comments                                          May 26, 2017.                                         NASDAQ BX, Inc., Nasdaq GEMX, LLC,
                                                                                                             Pursuant to Section 19(b)(1) of the                Nasdaq ISE, LLC, Nasdaq MRX, LLC,3
                                                     • Send paper comments in triplicate                  Securities Exchange Act of 1934 (the                  NASDAQ PHLX LLC, The NASDAQ
                                                  to Brent J. Fields, Secretary, Securities               ‘‘Act’’),1 and Rule 19b–4 thereunder,2                Stock Market LLC, New York Stock
                                                  and Exchange Commission, 100 F Street                   notice is hereby given that on May 16,                Exchange LLC, NYSE MKT LLC, NYSE
                                                  NE., Washington, DC 20549–1090.                         2017, Chicago Board Options Exchange,                 Arca, Inc. and NYSE National, Inc.4
                                                  All submissions should refer to File                    Incorporated (the ‘‘Exchange’’ or                     (collectively, the ‘‘Participants’’) filed
                                                  Number SR–IEX–2017–18. This file                        ‘‘CBOE’’) filed with the Securities and               with the Commission, pursuant to
                                                  number should be included on the                        Exchange Commission (the                              Section 11A of the Exchange Act 5 and
                                                  subject line if email is used. To help the              ‘‘Commission’’) the proposed rule                     Rule 608 of Regulation NMS
                                                  Commission process and review your                      change as described in Items I, II, and               thereunder,6 the CAT NMS Plan.7 The
                                                  comments more efficiently, please use                   III below, which Items have been                      Participants filed the Plan to comply
                                                  only one method. The Commission will                    prepared by the Exchange. The                         with Rule 613 of Regulation NMS under
                                                  post all comments on the Commission’s                   Commission is publishing this notice to               the Exchange Act. The Plan was
                                                  Internet Web site (http://www.sec.gov/                  solicit comments on the proposed rule                 published for comment in the Federal
                                                  rules/sro.shtml). Copies of the                         change from interested persons.
                                                  submission, all subsequent                                                                                       3 ISE Gemini, LLC, ISE Mercury, LLC and

                                                  amendments, all written statements                      I. Self-Regulatory Organization’s                     International Securities Exchange, LLC have been
                                                  with respect to the proposed rule                       Statement of the Terms of Substance of                renamed Nasdaq GEMX, LLC, Nasdaq MRX, LLC,
                                                                                                          the Proposed Rule Change                              and Nasdaq ISE, LLC, respectively. See Securities
                                                  change that are filed with the                                                                                Exchange Act Rel. No. 80248 (Mar. 15, 2017), 82 FR
                                                  Commission, and all written                               The Exchange proposes to amend its                  14547 (Mar. 21, 2017); Securities Exchange Act Rel.
                                                  communications relating to the                          Fees Schedule to establish the fees for               No. 80326 (Mar. 29, 2017), 82 FR 16460 (Apr. 4,
                                                                                                                                                                2017); and Securities Exchange Act Rel. No. 80325
                                                  proposed rule change between the                        Industry Members related to the CAT                   (Mar. 29, 2017), 82 FR 16445 (Apr. 4, 2017).
                                                  Commission and any person, other than                   NMS Plan. The text of the proposed rule                  4 National Stock Exchange, Inc. has been renamed
                                                  those that may be withheld from the                     change is available on the Exchange’s                 NYSE National, Inc. See Securities Exchange Act
                                                  public in accordance with the                           Web site (http://www.cboe.com/                        Rel. No. 79902 (Jan. 30, 2017), 82 FR 9258 (Feb. 3,
                                                  provisions of 5 U.S.C. 552, will be                                                                           2017).
                                                                                                          AboutCBOE/                                               5 15 U.S.C. 78k–1.
                                                  available for Web site viewing and                      CBOELegalRegulatoryHome.aspx), at
mstockstill on DSK30JT082PROD with NOTICES




                                                                                                                                                                   6 17 CFR 242.608.
                                                  printing in the Commission’s Public                     the Exchange’s Office of the Secretary,                  7 See Letter from the Participants to Brent J.
                                                  Reference Room, 100 F Street NE.,                       and at the Commission’s Public                        Fields, Secretary, Commission, dated September 30,
                                                  Washington, DC 20549 on official                        Reference Room.                                       2014; and Letter from Participants to Brent J. Fields,
                                                  business days between the hours of                                                                            Secretary, Commission, dated February 27, 2015.
                                                                                                                                                                On December 24, 2015, the Participants submitted
                                                  10:00 a.m. and 3:00 p.m. Copies of such                   32 17 CFR 200.30–3(a)(12).                          an amendment to the CAT NMS Plan. See Letter
                                                  filing also will be available for                         1 15 U.S.C. 78s(b)(1).                              from Participants to Brent J. Fields, Secretary,
                                                  inspection and copying at the principal                   2 17 CFR 240.19b–4.                                 Commission, dated December 23, 2015.



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                                                                                 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices                                          25405

                                                  Register on May 17, 2016,8 and                          estimated to be incurred, from                        market share. Similarly, Options
                                                  approved by the Commission, as                          November 21, 2016 through November                    Execution Venues with a larger market
                                                  modified, on November 15, 2016.9 The                    21, 2017. (See Section 3(a)(2)(E) [sic]               share will pay a larger CAT Fee than
                                                  Plan is designed to create, implement                   below 13)                                             Options Execution Venues with a
                                                  and maintain a consolidated audit trail                    • Bifurcated Funding Model. The                    smaller market share. (See Section
                                                  (‘‘CAT’’) that would capture customer                   CAT NMS Plan requires a bifurcated                    3(a)(2)(C) [sic] below)
                                                  and order event information for orders                  funding model, where costs associated                    • Cost Allocation. For the reasons
                                                  in NMS Securities and OTC Equity                        with building and operating the CAT                   discussed below, in designing the
                                                  Securities, across all markets, from the                would be borne by (1) Participants and                model, the Operating Committee
                                                  time of order inception through routing,                Industry Members that are Execution                   determined that 75 percent of total costs
                                                  cancellation, modification, or execution                Venues for Eligible Securities through                recovered would be allocated to
                                                  in a single consolidated data source.                   fixed tier fees based on market share,                Industry Members (other than Execution
                                                  The Plan accomplishes this by creating                  and (2) Industry Members (other than                  Venue ATSs) and 25 percent would be
                                                  CAT NMS, LLC (the ‘‘Company’’), of                      alternative trading systems (‘‘ATSs’’)                allocated to Execution Venues. In
                                                  which each Participant is a member, to                  that execute transactions in Eligible                 addition, the Operating Committee
                                                  operate the CAT.10 Under the CAT NMS                    Securities (‘‘Execution Venue ATSs’’))                determined to allocate 75 percent of
                                                  Plan, the Operating Committee of the                    through fixed tier fees based on message              Execution Venue costs recovered to
                                                  Company (‘‘Operating Committee’’) has                   traffic for Eligible Securities. (See                 Equity Execution Venues and 25 percent
                                                  discretion to establish funding for the                 Section 3(a)(2) [sic] below)                          to Options Execution Venues. (See
                                                  Company to operate the CAT, including                      • Industry Member Fees. Each                       Section 3(a)(2)(D) [sic] below)
                                                  establishing fees that the Participants                 Industry Member (other than Execution                    • Comparability of Fees. The CAT
                                                  will pay, and establishing fees for                     Venue ATSs) will be placed into one of                funding model requires that the CAT
                                                  Industry Members that will be                           nine tiers of fixed fees, based on                    Fees charged to the CAT Reporters with
                                                  implemented by the Participants (‘‘CAT                  ‘‘message traffic’’ in Eligible Securities            the most CAT-related activity (measured
                                                  Fees’’).11 The Participants are required                for a defined period (as discussed                    by market share and/or message traffic,
                                                  to file with the SEC under Section 19(b)                below). Prior to the start of CAT                     as applicable) are generally comparable
                                                  of the Exchange Act any such CAT Fees                   reporting, ‘‘message traffic’’ will be                (where, for these comparability
                                                  applicable to Industry Members that the                 comprised of historical equity and                    purposes, the tiered fee structure takes
                                                  Operating Committee approves.12                         equity options orders, cancels and                    into consideration affiliations between
                                                  Accordingly, CBOE submits this fee                      quotes provided by each exchange and                  or among CAT Reporters, whether
                                                  filing to propose the Consolidated Audit                FINRA over the previous three months.                 Execution Venues and/or Industry
                                                  Trail Funding Fees, which will require                  After an Industry Member begins                       Members). (See Section 3(a)(2)(F) [sic]
                                                  Industry Members that are CBOE                          reporting to the CAT, ‘‘message traffic’’             below)
                                                  Trading Permit Holders to pay the CAT                   will be calculated based on the Industry              (B) CAT Fees for Industry Members
                                                  Fees determined by the Operating                        Member’s Reportable Events reported to
                                                  Committee.                                                                                                      • Fee Schedule. The quarterly CAT
                                                                                                          the CAT. Industry Members with lower
                                                                                                                                                                Fees for each tier for Industry Members
                                                  (1) Executive Summary                                   levels of message traffic will pay a lower
                                                                                                                                                                are set forth in the two fee schedules in
                                                                                                          fee and Industry Members with higher
                                                    The following provides an executive                                                                         the Consolidated Audit Trail Funding
                                                                                                          levels of message traffic will pay a
                                                  summary of the CAT funding model                                                                              Fees, one for Equity ATSs and one for
                                                                                                          higher fee. (See Section 3(a)(2)(B) [sic]
                                                  approved by the Operating Committee,                                                                          Industry Members other than Equity
                                                                                                          below)
                                                  as well as Industry Members’ rights and                    • Execution Venue Fees. Each Equity                ATSs. (See Section 3(a)(3)(B) [sic]
                                                  obligations related to the payment of                   Execution Venue will be placed in one                 below)
                                                  CAT Fees calculated pursuant to the                                                                             • Quarterly Invoices. Industry
                                                                                                          of two tiers of fixed fees based on
                                                  CAT funding model. A detailed                                                                                 Members will be billed quarterly for
                                                                                                          market share, and each Options
                                                  description of the CAT funding model                                                                          CAT Fees, with the invoices payable
                                                                                                          Execution Venue will be placed in one
                                                  and the CAT Fees follows this executive                                                                       within 30 days. The quarterly invoices
                                                                                                          of two tiers of fixed fees based on
                                                  summary.                                                                                                      will identify within which tier the
                                                                                                          market share. Equity Execution Venue
                                                                                                                                                                Industry Member falls. (See Section
                                                  (A) CAT Funding Model                                   market share will be determined by
                                                                                                                                                                3(a)(3)(C) [sic] below)
                                                                                                          calculating each Equity Execution                       • Centralized Payment. Each Industry
                                                     • CAT Costs. The CAT funding model                   Venue’s proportion of the total volume
                                                  is designed to establish CAT-specific                                                                         Member will receive from the Company
                                                                                                          of NMS Stock and OTC Equity shares                    one invoice for its applicable CAT Fees,
                                                  fees to collectively recover the costs of               reported by all Equity Execution Venues
                                                  building and operating the CAT from all                                                                       not separate invoices from each
                                                                                                          during the relevant time period.                      Participant of which it is a member. The
                                                  CAT Reporters, including Industry                       Similarly, market share for Options
                                                  Members and Participants. The overall                                                                         Industry Members will pay its CAT Fees
                                                                                                          Execution Venues will be determined by                to the Company via the centralized
                                                  CAT costs for the calculation of the CAT                calculating each Options Execution
                                                  Fees in this fee filing are comprised of                                                                      system for the collection of CAT Fees
                                                                                                          Venue’s proportion of the total volume                established by the Operating Committee.
                                                  Plan Processor CAT costs and non-Plan                   of Listed Options contracts reported by
                                                  Processor CAT costs incurred, and                                                                             (See Section 3(a)(3)(C) [sic] below)
                                                                                                          all Options Execution Venues during                     • Billing Commencement. Industry
                                                                                                          the relevant time period. Equity                      Members will begin to receive invoices
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                                                    8 Securities Exchange Act Rel. No. 77724 (Apr.

                                                  27, 2016), 81 FR 30614 (May 17, 2016).                  Execution Venues with a larger market                 for CAT Fees as promptly as possible
                                                    9 Securities Exchange Act Rel. No. 79318 (Nov.        share will pay a larger CAT Fee than                  following the establishment of a billing
                                                  15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘Approval      Equity Execution Venues with a smaller                mechanism. CBOE will issue a
                                                  Order’’).
                                                    10 The Plan also serves as the limited liability        13 The Commission notes that references to
                                                                                                                                                                Regulatory Circular to Trading Permit
                                                  company agreement for the Company.                      Sections 3(a)(2) and 3(a)(3) in this Executive
                                                                                                                                                                Holders when the billing mechanism is
                                                    11 Section 11.1(b) of the CAT NMS Plan.
                                                                                                          Summary should be instead to Sections II.A.1.(2)      established, specifying the date when
                                                    12 Id.                                                and II.A.1.(3), respectively.                         such invoicing of Industry Members


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                                                  25406                          Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices

                                                  will commence. (See Section 3(a)(2)(G)                  alternatives, the Operating Committee                    Reporters that contribute more to the
                                                  [sic] below)                                            determined that the proposed tiered,                     costs of creating, implementing and
                                                                                                          fixed fee funding model provides a                       maintaining the CAT.22 The fees to be
                                                  (2) Description of the CAT Funding
                                                                                                          variety of advantages in comparison to                   assessed at each tier are calculated so as
                                                  Model
                                                                                                          the alternatives. First, the fixed fee                   to recoup a proportion of costs
                                                     Article XI of the CAT NMS Plan                       model, as opposed to a variable fee                      appropriate to the message traffic or
                                                  requires the Operating Committee to                     model, provides transparency, ease of                    market share (as applicable) from CAT
                                                  approve the operating budget, including                 calculation, ease of billing and other                   Reporters in each tier. Therefore,
                                                  projected costs of developing and                       administrative functions, and                            Industry Members generating the most
                                                  operating the CAT for the upcoming                      predictability of a fixed fee. Such factors              message traffic will be in the higher
                                                  year. As set forth in Article XI of the                 are crucial to estimating a reliable                     tiers, and therefore be charged a higher
                                                  CAT NMS Plan, the CAT NMS Plan                          revenue stream for the Company and for                   fee. Industry Members with lower levels
                                                  requires a bifurcated funding model,                    permitting CAT Reporters to reasonably                   of message traffic will be in lower tiers
                                                  where costs associated with building                    predict their payment obligations for                    and will be assessed a smaller fee for the
                                                  and operating the Central Repository                    budgeting purposes.19 Additionally, a                    CAT.23 Correspondingly, Execution
                                                  would be borne by (1) Participants and                  strictly variable or metered funding                     Venues with the highest market share
                                                  Industry Members that are Execution                     model based on message volume would                      will be in the top tier, and therefore will
                                                  Venues through fixed tier fees based on                 be far more likely to affect market                      be charged a higher fee. Execution
                                                  market share, and (2) Industry Members                  behavior and place an inappropriate                      Venues with a lower market share will
                                                  (other than Execution Venue ATSs)                       burden on competition. Moreover, as                      be in the lower tier and will be assessed
                                                  through fixed tier fees based on message                the SEC noted in approving the CAT                       a smaller fee for the CAT.24
                                                  traffic. In its order approving the CAT                 NMS Plan, ‘‘[t]he Participants also have                    The Commission also noted in
                                                  NMS Plan, the Commission determined                     offered a reasonable basis for                           approving the CAT NMS Plan that
                                                  that the proposed funding model was                     establishing a funding model based on                    ‘‘[t]he Participants have offered a
                                                  ‘‘reasonable’’ 14 and ‘‘reflects a                      broad tiers, in that it be may be easier                 credible justification for using different
                                                  reasonable exercise of the Participants’                to implement.’’ 20                                       criteria to charge Execution Venues
                                                  funding authority to recover the                           In addition, multiple reviews of                      (market share) and Industry Members
                                                  Participants’ costs related to the                      current broker-dealer order and trading                  (message traffic)’’ 25 in the CAT funding
                                                  CAT.’’ 15                                               data submitted under existing reporting                  model. While there are multiple factors
                                                     More specifically, the Commission                    requirements showed a wide range in                      that contribute to the cost of building,
                                                  stated in approving the CAT NMS Plan                    activity among broker-dealers, with a                    maintaining and using the CAT,
                                                  that ‘‘[t]he Commission believes that the               number of broker-dealers submitting                      processing and storage of incoming
                                                  proposed funding model is reasonably                    fewer than 1,000 orders per month and                    message traffic is one of the most
                                                  designed to allocate the costs of the CAT               other broker-dealers submitting millions                 significant cost drivers for the CAT.26
                                                  between the Participants and Industry                   and even billions of orders in the same                  Thus, the CAT NMS Plan provides that
                                                  Members.’’ 16 The Commission further                    period. Accordingly, the CAT NMS Plan                    the fees payable by Industry Members
                                                  noted the following:                                    includes a tiered approach to fees. The                  (other than Execution Venue ATSs) will
                                                     The Commission believes that the                     tiered approach helps ensure that fees                   be based on the message traffic
                                                  proposed funding model reflects a reasonable            are equitably allocated among similarly                  generated by such Industry Member.27
                                                  exercise of the Participants’ funding                   situated CAT Reporters and furthers the                     The CAT NMS Plan provides that the
                                                  authority to recover the Participants’ costs                                                                     Operating Committee will use different
                                                  related to the CAT. The CAT is a regulatory
                                                                                                          goal of lessening the impact on smaller
                                                                                                                                                                   criteria to establish fees for Execution
                                                  facility jointly owned by the Participants and          firms.21 The self-regulatory
                                                                                                                                                                   Venues and non-Execution Venues due
                                                  . . . the Exchange Act specifically permits             organizations considered several
                                                                                                                                                                   to the fundamental differences between
                                                  the Participants to charge their members fees           approaches to developing a tiered
                                                                                                                                                                   the two types of entities. In particular,
                                                  to fund their self-regulatory obligations. The          model, including defining fee tiers
                                                  Commission further believes that the                                                                             the CAT NMS Plan provides that fees
                                                                                                          based on such factors as size of firm,
                                                  proposed funding model is designed to                                                                            charged to CAT Reporters that are
                                                                                                          message traffic or trading dollar volume.
                                                  impose fees reasonably related to the                                                                            Execution Venues will be based on the
                                                                                                          After analyzing the alternatives, it was
                                                  Participants’ self-regulatory obligations                                                                        level of market share and that costs
                                                  because the fees would be directly associated           concluded that the tiering should be
                                                                                                                                                                   charged to Industry Members (other
                                                  with the costs of establishing and                      based on the relative impact of CAT                      than Execution Venue ATSs) will be
                                                  maintaining the CAT, and not unrelated SRO              Reporters on the CAT System.                             based upon message traffic.28 Because
                                                  services.17                                                Accordingly, the CAT NMS Plan
                                                     Accordingly, the funding model imposes
                                                                                                                                                                   most Participant message traffic consists
                                                                                                          contemplates that costs will be allocated
                                                  fees on both Participants and Industry                                                                           of quotations, and Participants usually
                                                                                                          across the CAT Reporters on a tiered
                                                  Members.                                                                                                         disseminate quotations in all
                                                                                                          basis to allocate costs to those CAT
                                                                                                                                                                   instruments they trade, regardless of
                                                     In addition, as discussed in Appendix
                                                                                                                                                                   execution volume, Execution Venues
                                                  C of the CAT NMS Plan, the Operating                       19 In choosing a tiered fee structure, the self-
                                                                                                                                                                   that are Participants generally
                                                  Committee considered the advantages                     regulatory organizations (‘‘SROs’’) concluded that
                                                                                                          the variety of benefits offered by a tiered fee          disseminate similar amounts of message
                                                  and disadvantages of a variety of                       structure, discussed above, outweighed the fact that     traffic. Accordingly, basing fees for
                                                  alternative funding and cost allocation                 Industry Members in any particular tier would pay        Execution Venues on message traffic
                                                  models before selecting the proposed                    different rates per message traffic order event (e.g.,
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                                                  model.18 After analyzing the various                    an Industry Member with the largest amount of
                                                                                                                                                                     22 Approval   Order at 85005.
                                                                                                          message traffic in one tier would pay a smaller
                                                                                                                                                                     23 Id.
                                                                                                          amount per order event than an Industry Member
                                                    14 Approval  Order at 84796.                                                                                     24 Id.
                                                                                                          in the same tier with the least amount of message
                                                    15 Id.at 84794.                                                                                                  25 Id.
                                                                                                          traffic). Such variation is the natural result of a             at 84796.
                                                   16 Id. at 84795.                                       tiered fee structure.                                      26 SectionB.7, Appendix C of the CAT NMS Plan,
                                                   17 Id. at 84794.                                          20 Approval Order at 84796.                           Approval Order at 85005.
                                                   18 Section B.7, Appendix C of the CAT NMS Plan,           21 Section B.7, Appendix C of the CAT NMS Plan,        27 Section 11.3(b) of the CAT NMS Plan.

                                                  Approval Order at 85006.                                Approval Order at 85006.                                  28 Section 11.2(c) of the CAT NMS Plan.




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                                                                                 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices                                            25407

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


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                                                  25408                          Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices

                                                  resources of different Industry Members,                level of message traffic. To determine                funding model, allowing the funding
                                                  and that establish comparable fees                      the fixed percentage of Industry                      model to respond to changes in either
                                                  among the CAT Reporters with the most                   Members in each tier, the Operating                   the total number of Industry Members or
                                                  Reportable Events. The Operating                        Committee analyzed historical message                 the total level of message traffic.
                                                  Committee has determined that                           traffic generated by Industry Members                    The following chart illustrates the
                                                  establishing nine tiers results in the                  across all exchanges and as submitted to              breakdown of nine Industry Member
                                                  fairest allocation of fees, best                        OATS, and considered the distribution                 tiers across the monthly average of total
                                                  distinguishing between Industry                         of firms with similar levels of message               equity and equity options orders,
                                                  Members with differing levels of                        traffic, grouping together firms with
                                                                                                                                                                cancels and quotes in Q1 2016 and
                                                  message traffic. Thus, each such                        similar levels of message traffic. Based
                                                                                                                                                                identifies relative gaps across varying
                                                  Industry Member will be placed into                     on this, the Operating Committee
                                                                                                                                                                levels of Industry Member message
                                                  one of nine tiers of fixed fees, based on               identified tiers that would group firms
                                                                                                                                                                traffic as well as message traffic
                                                  ‘‘message traffic’’ for a defined period                with similar levels of message traffic,
                                                  (as discussed below). A nine tier                       charging those firms with higher impact               thresholds between the largest of
                                                  structure was selected to provide the                   on the CAT more, while lowering the                   Industry Member message traffic gaps.
                                                  widest range of levels for tiering                      burden on Industry Members that have                  The Operating Committee referenced
                                                  Industry Members such that Industry                     less CAT-related activity.                            similar distribution illustrations to
                                                  Members submitting significantly less                      The percentage of costs recovered by               determine the appropriate division of
                                                  message traffic to the CAT would be                     each Industry Member tier will be                     Industry Member percentages in each
                                                  adequately differentiated from Industry                 determined by predefined percentage                   tier by considering the grouping of firms
                                                  Members submitting substantially more                   allocations (the ‘‘Industry Member                    with similar levels of message traffic
                                                  message traffic. The Operating                          Recovery Allocation’’). In determining                and seeking to identify relative
                                                  Committee considered historical                         the fixed percentage allocation of costs              breakpoints in the message traffic
                                                  message traffic generated by Industry                   recovered for each tier, the Operating                between such groupings. In reviewing
                                                  Members across all exchanges and as                     Committee considered the impact of                    the chart and its corresponding table,
                                                  submitted to FINRA’s Order Audit Trail                  CAT Reporter message traffic on the                   note that while these distribution
                                                  System (‘‘OATS’’), and considered the                   CAT System as well as the distribution                illustrations were referenced to help
                                                  distribution of firms with similar levels               of total message volume across Industry               differentiate between Industry Member
                                                  of message traffic, grouping together                   Members while seeking to maintain                     tiers, the proposed funding model is
                                                  firms with similar levels of message                    comparable fees among the largest CAT                 directly driven, not by fixed message
                                                  traffic. Based on this, the Operating                   Reporters. Accordingly, following the                 traffic thresholds, but rather by fixed
                                                  Committee determined that nine tiers                    determination of the percentage of                    percentages of Industry Members across
                                                  would best group firms with similar                     Industry Members in each tier, the                    tiers to account for fluctuating levels of
                                                  levels of message traffic, charging those               Operating Committee identified the                    message traffic across time and to
                                                  firms with higher impact on the CAT                     percentage of total market volume for                 provide for the financial stability of the
                                                  more, while lowering the burden of                      each tier based on the historical message             CAT by ensuring that the funding model
                                                  Industry Members that have less CAT-                    traffic upon which Industry Members                   will recover the required amounts
                                                  related activity.                                       had been initially ranked. Taking this                regardless of changes in the number of
                                                     Each Industry Member (other than                     into account along with the resulting                 Industry Members or the amount of
                                                  Execution Venue ATSs) will be ranked                    percentage of total recovery, the                     message traffic. Actual messages in any
                                                  by message traffic and tiered by                        percentage allocation of costs recovered              tier will vary based on the actual traffic
                                                  predefined Industry Member                              for each tier were assigned, allocating               in a given measurement period, as well
                                                  percentages (the ‘‘Industry Member                      higher percentages of recovery to tiers               as the number of firms included in the
                                                  Percentages’’). The Operating                           with higher levels of message traffic                 measurement period. The Industry
                                                  Committee determined to use                             while avoiding any inappropriate                      Member Percentages and Industry
                                                  predefined percentages rather than fixed                burden on competition. Furthermore, by                Member Recovery Allocation for each
                                                  volume thresholds to allow the funding                  using percentages of Industry Members                 tier will remain fixed with each
                                                  model to ensure that the total CAT fees                 and costs recovered per tier, the                     Industry Member’s tier to be reassigned
                                                  collected recover the intended CAT                      Operating Committee sought to include                 periodically, as described below in
                                                  costs regardless of changes in the total                stability and elasticity within the                   Section 3(a)(1)(H) [sic].
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                                                                                               Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices                                                                                                      25409




                                                                                                                                                                                                                                                                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                  of Industry                Percentage of
                                                                                                             Industry Member tier                                                                              of 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
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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
                                                  commencement of CAT reporting and                                              CAT reporting. Accordingly, prior to the
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                                                  25410                          Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices

                                                  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
                                                  (Mar. 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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                                                                                             Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices                                                                         25411

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


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                                                  25412                                      Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices

                                                  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
                                                  share. Furthermore, due to the smaller                                       Options Execution Venue Percentages                                        model to respond to changes in either
                                                  number of Options Execution Venues,                                          was the same as discussed above with                                       the total number of Options Execution
                                                  the incorporation of additional Options                                      regard to Equity Execution Venues.                                         Venues or changes in market share. The
                                                  Execution Venue tiers would result in                                           The percentage of costs recovered by                                    process for developing the Options
                                                  significantly higher fees for Tier 1                                         each Options Execution Venue tier will                                     Execution Venue Recovery Allocation
                                                  Options Execution Venues and reduce                                          be determined by predefined percentage                                     was the same as discussed above with
                                                  comparability between Execution                                              allocations (the ‘‘Options Execution                                       regard to Equity Execution Venues.
                                                  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:
                                                  percentages, (the ‘‘Options Execution                                        considered the impact of CAT Reporter

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



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                                                                                          Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices                                                                               25413

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

                                                                                     Cost category                                                                              Cost component                                               Amount

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

                                                                                                                                                Insurance Costs .........................................................................      3,000,000




                                                     40 It is anticipated that CAT-related costs incurred

                                                  prior to November 21, 2016 will be addressed via
                                                  a separate fee filing.

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                                                  25414                                        Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices

                                                                                         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 VenueATSs):
                                                  described above, the Operating

                                                                                                                                                                                                             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:

                                                                                                                                                                                                                 Monthly                    Quarterly              CAT fees paid
                                                                                                                          Tier                                                                                   CAT fee                    CAT fee                 annually 44

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



                                                   For Execution Venues for Listed
                                                  Options:

                                                                                                                                                                                                                 Monthly                    Quarterly              CAT fees paid
                                                                                                                          Tier                                                                                   CAT fee                    CAT 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                                        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 of
                                                                                                                                                                                                                                          Industry
                                                                                                            Industry Member tier                                                                              Industry                                                 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
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                                                    41 This $5,000,000 represents the gradual                                    (other than Execution Venue ATSs) (i.e., ‘‘CAT Fees                            ‘‘CAT Fees Paid Annually’’ = ‘‘Monthly CAT Fee’’
                                                  accumulation of the funds for a target operating                               Paid Annually’’ = ‘‘Monthly CAT Fee’’ × 12                                     × 12 months).
                                                  reserve of $11,425,000.                                                        months).                                                                          45 This column represents the approximate total
                                                    42 Note that all monthly, quarterly and annual
                                                                                                                                   44 This column represents the approximate total                              CAT Fees paid each year by each Execution Venue
                                                  CAT Fees have been rounded to the nearest dollar.
                                                    43 This column represents the approximate total
                                                                                                                                 CAT Fees paid each year by each Execution Venue                                for Listed Options (i.e., ‘‘CAT Fees Paid Annually’’
                                                                                                                                 for NMS Stocks and OTC Equity Securities (i.e.,                                = ‘‘Monthly CAT Fee’’ × 12 months).
                                                  CAT Fees paid each year by each Industry Member



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                                                                                               Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices                                                                                                    25415

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

                                                  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


                                                  BILLING CODE 8011–01–P
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                                                  25416                            Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices

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

                                                            1,631 [Estimated Tot. !Ms] x 0.5% [%of Tier 1 !Ms] = 8 [Estimated Tier 1 !Ms]

                                                                 $50,700,000 [Tot.Ann.CAT Costs] X 75% [IM% ofTot.Ann.CAT Costs] X8.50% [%of Tier 1 IM Recovery])           [M        th                  ]
                                                             (                                        8 [Eslimaled Tier 1 !Ms]
                                                                                                                                                                  7    12        on        S   per year       = $33,668


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

                                                            1,631 [Estimated Tot. !Ms] x 2.5% [%of Tier 2 !Ms] = 41 [Estimated Tier 2 !Ms]


                                                             (
                                                                 $50,700,000 [Tot.Ann.CAT Costs] x 75% [IM% ofTot.Ann.CAT Costs] X35% [%of Tier 2 IM Recovery])
                                                                                                     41 [Estimated Tier 2 !Ms]
                                                                                                                                                                7     12 [Months p er Year] = $27,051


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

                                                            1,631 [Estimated Tot. !Ms] x 2.125% [%of Tier 3 !Ms]         =    35 [Estimated Tier 3 !Ms]


                                                             (
                                                                 $50,700,000 [Tot.Ann.CAT Costs] x 75% [IM% ofTot.Ann.CAT Costs] X21.25% [%of Tier 3 IM Recovery])
                                                                                                      35 [Estimated Tier 3 !Ms]
                                                                                                                                                                   7    12 [Months p er Year] = $19 ' 239


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

                                                            1,631 [Estimated Tot. !Ms] x 4.625% [%of Tier 4 !Ms] = 75 [Estimated Tier 4 !Ms]


                                                             (
                                                                 $50,700,000 [Tot.Ann.CAT Costs] x 75% [IM% ofTot.Ann.CAT Costs] X15.75% [%of Tier 1 IM Recovery])
                                                                                                      75 [Estimated Tier 4 !Ms]
                                                                                                                                                                   7    12 [Months per Year] = $6, 655


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

                                                            1,631 [Estimated Tot. !Ms] x 3.625% [%of Tier 5 !Ms] = 59 [Estimated Tier 5 !Ms]


                                                             (
                                                                 $50,700,000 [Tot.Ann.CAT Costs] X 75% [IM% ofTot.Ann.CAT Costs] X7.75% [%of Tier 5 IM Recovery])
                                                                                                      59 [Estimated Tier 5 !Ms]
                                                                                                                                                                  7    12 [Months p er Year] = $4, 163


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

                                                            1,631 [Estimated Tot. !Ms] x 4% [%of Tier 6 !Ms] = 65 [Estimated Tier 6 !Ms]


                                                             (
                                                                 $50,700,000 [Tot.Ann.CAT Costs] x 75% [IM% ofTot.Ann.CAT Costs] X5.25% [%of Tier 6 IM Recovery] )
                                                                                                      65 [Estimated Tier 6 !Ms]
                                                                                                                                                                   7   1 2 [Months p er Year] = $2, 560


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

                                                            1,631 [Estimated Tot. !Ms] x 17.5% [%of Tier 7 !Ms] = 285 [Estimated Tier 7 !Ms]


                                                             (
                                                                 $50,700,000 [Tot.Ann.CAT Costs] x 75% [IM% ofTot.Ann.CAT Costs] X4.50% [%of Tier 7 IM Recovery])
                                                                                                     285 [Estimated Tier 7 !Ms]
                                                                                                                                                                  7    1 2 [Months p er Year] = $501


                                                                        Calculation 1.8 (Calculation of a Tier 8 Industry Member Monthly Fee)

                                                            1,631 [Estimated Tot. !Ms] x 20.125% [%of Tier 8 !Ms] = 328 [Estimated Tier 8 !Ms]


                                                             (
                                                                 $50,700,000 [Tot.Ann.CAT Costs] x 75% [IM% ofTot.Ann.CAT Costs] X1.50% [%of Tier 0 IM Recovery])
                                                                                                     328 [Estimated Tier 8 !Ms]
                                                                                                                                                                  7    12 [Months p er Year] = $145

                                                                        Calculation 1.9 (Calculation of a Tier 9 Industry Member Monthly Fee)
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                                                            1,631 [Estimated Tot. !Ms] x 45% [% ofTier 9 !Ms] = 735 [Estimated Tier 9 !Ms]

                                                                 $50,700,000 [Tot.Ann.CAT Costs] x 75% [IM% ofTot.Ann.CAT Costs] XO.SO% [% ofTier 9 IM Recovery])           [M     th         ] $
                                                             (                                           735 [Est.Tier 91Ms]
                                                                                                                                                                  7    12        on s per year = 22


                                                  BILLING CODE 8011–01–P
                                                                                                                                                                                                                          EN01JN17.009</GPH>




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                                                                                              Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices                                                                                                 25417

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


                                                                                                                                                                                                                                                                  Estimated
                                                                                                                                                                                                                                                                  number of
                                                                                                                                 Equity Execution Venue tier                                                                                                        Equity
                                                                                                                                                                                                                                                                  Execution
                                                                                                                                                                                                                                                                   Venues

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

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




                                                                                                                                                                                                            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


                                                                                                                                   TRACEABILITY OF TOTAL CAT FEES
                                                                                                                                                                                                             Estimated
                                                                                                                                                                                 Industry                                            CAT fees paid
                                                                                                          Type                                                                                               number of                                          Total recovery
                                                                                                                                                                                Member tier                                            annually
                                                                                                                                                                                                             members

                                                  Industry Members ............................................................................................               Tier   1   .............                       8                $404,016             $3,232,128
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                                                                                                                                                                              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
                                                                                                                                                                                                                                                                                 EN01JN17.010</GPH>




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                                                  25418                                     Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices

                                                                                                                     TRACEABILITY OF TOTAL CAT FEES—Continued
                                                                                                                                                                                                           Estimated
                                                                                                                                                                               Industry                                             CAT fees paid
                                                                                                        Type                                                                                               number of                                           Total recovery
                                                                                                                                                                              Member tier                                             annually
                                                                                                                                                                                                           members

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

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

                                                  Equity Execution Venues ................................................................................                 Tier 1 .............                             13                 253,500             3,295,500
                                                                                                                                                                           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 Execution                          Listing of Options Execution                     Total fees by
                                                                             Execution Venue complex                                                             Venue tiers                                            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                                                                                                               Listing of ATS tiers
                                                                                                                                                                      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) ............................
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                                                  Industry Member Complex 5 ....................................................                     •   Tier   2   (x1) ............................     • Tier 2 (x1) ............................                 796,595
                                                                                                                                                     •   Tier   3   (x1) ............................
                                                                                                                                                     •   Tier   4   (x1) ............................
                                                                                                                                                     •   Tier   7   (x1).

                                                    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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                                                                                  Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices                                                   25419

                                                  (G) Billing Onset                                         With such reviews, the Operating                        Reporters between tiers will not change
                                                     Under Section 11.1(c) of the CAT                       Committee will review the distribution                  the criteria for each tier or the fee
                                                  NMS Plan, to fund the development and                     of Industry Members and Execution                       amount corresponding to each tier.
                                                  implementation of the CAT, the                            Venues across tiers, and make any                          In performing the tri-monthly
                                                  Company shall time the imposition and                     updates to the percentage of CAT                        reassignments, CBOE notes that the
                                                  collection of all fees on Participants and                Reporters allocated to each tier as may                 percentage of CAT Reporters in each
                                                  Industry Members in a manner                              be necessary. In addition, the reviews                  assigned tier is relative. Therefore, a
                                                  reasonably related to the timing when                     will evaluate the estimated ongoing                     CAT Reporter’s assigned tier will
                                                  the Company expects to incur such                         CAT costs and the level of the operating                depend, not only on its own message
                                                  development and implementation costs.                     reserve. To the extent that the total CAT               traffic or market share, but it also will
                                                  The Company is currently incurring                        costs decrease, the fees would be                       depend on the message traffic/market
                                                  such development and implementation                       adjusted downward, and, to the extent                   share across all CAT Reporters. For
                                                  costs and will continue to do so prior                    that the total CAT costs increase, the                  example, the percentage of Industry
                                                  to the commencement of CAT reporting                      fees would be adjusted upward.48                        Members (other than Execution Venue
                                                  and thereafter. For example, the Plan                     Furthermore, any surplus of the                         ATSs) in each tier is relative such that
                                                  Processor has required up-front                           Company’s revenues over its expenses is                 such Industry Member’s assigned tier
                                                  payments to begin building the CAT. In                    to be included within the operational                   will depend on message traffic
                                                  addition, the Company continues to                        reserve to offset future fees. The                      generated across all CAT Reporters as
                                                  incur consultant and legal expenses on                    limitations on more frequent changes to                 well as the total number of CAT
                                                  an on-going basis to implement the                        the fee, however, are intended to                       Reporters. The Operating Committee
                                                  CAT. Accordingly, the Operating                           provide budgeting certainty for the CAT                 will inform CAT Reporters of their
                                                  Committee determined that all CAT                         Reporters and the Company.49 To the                     assigned tier every three months
                                                  Reporters, including both Industry                        extent that the Operating Committee                     following the periodic tiering process,
                                                  Members and Execution Venues                              approves changes to the number of tiers                 as the funding model will compare an
                                                  (including Participants), would begin to                  in the funding model or the fees                        individual CAT Reporter’s activity to
                                                  be invoiced as promptly as possible                       assigned to each tier, then CBOE will                   that of other CAT Reporters in the
                                                  following the establishment of a billing                  file such changes with the SEC pursuant                 marketplace.
                                                  mechanism. CBOE will issue a                              to Section 19(b) of the Exchange Act,                      The following demonstrates a tier
                                                  Regulatory Circular to Trading Permit                     and any such changes will become                        reassignment. In accordance with the
                                                  Holders when the billing mechanism is                     effective in accordance with the                        funding model, the top 75% of Options
                                                  established, specifying the date when                     requirements of Section 19(b).                          Execution Venues in market share are
                                                  such invoicing of Industry Members                        (I) Initial and Periodic Tier                           categorized as Tier 1 while the bottom
                                                  will commence.                                            Reassignments                                           25% of Options Execution Venues in
                                                                                                                                                                    market share are categorized as Tier 2.
                                                  (H) Changes to Fee Levels and Tiers                          The Operating Committee has                          In the sample scenario below, Options
                                                    Section 11.3(d) of the CAT NMS Plan                     determined to calculate fee tiers every                 Execution Venue L is initially
                                                  states that ‘‘[t]he Operating Committee                   three months based on market share or                   categorized as a Tier 2 Options
                                                  shall review such fee schedule on at                      message traffic, as applicable, from the                Execution Venue in Period A due to its
                                                  least an annual basis and shall make any                  prior three months. For the initial tier                market share. When market share is
                                                  changes to such fee schedule that it                      assignments, the Company will                           recalculated for Period B, the market
                                                  deems appropriate. The Operating                          calculate the relevant tier for each CAT                share of Execution Venue L increases,
                                                  Committee is authorized to review such                    Reporter using the three months of data                 and it is therefore subsequently
                                                  fee schedule on a more regular basis, but                 prior to the commencement date. As                      reranked and reassigned to Tier 1 in
                                                  shall not make any changes on more                        with the initial tier assignment, for the               Period B. Correspondingly, Options
                                                  than a semi-annual basis unless,                          tri-monthly reassignments, the                          Execution Venue K, initially a Tier 1
                                                  pursuant to a Supermajority Vote, the                     Company will calculate the relevant tier                Options Execution Venue in Period A,
                                                  Operating Committee concludes that                        using the three months of data prior to                 is reassigned to Tier 2 in Period B due
                                                  such change is necessary for the                          the relevant tri-monthly date. CBOE                     to decreases in its market share of share
                                                  adequate funding of the Company.’’                        notes that any movement of CAT                          volume.

                                                                                       Period A                                                                                Period B

                                                                                                   Market share                                                                            Market share
                                                        Options Execution Venue                                            Tier                Options Execution Venue                                    Tier
                                                                                                      rank                                                                                    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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                                                  25420                                        Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices

                                                                                                    Period A                                                                                                               Period B

                                                                                                                  Market share                                                                                                          Market share
                                                           Options Execution Venue                                                                    Tier                        Options Execution Venue                                                   Tier
                                                                                                                     rank                                                                                                                  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                                                  ATS.’’ First, paragraph (a)(2) defines an                                       (B) Fee Schedule
                                                                                                                                 ‘‘ATS’’ to mean an alternative trading
                                                    CBOE proposes the Consolidated                                               system as defined in Rule 300(a) of                                                CBOE proposes to impose the CAT
                                                  Audit Trail Funding Fees to implement                                          Regulation ATS under the Securities                                             Fees applicable to its Industry Members
                                                  the CAT Fees determined by the                                                 Exchange Act of 1934, as amended, that                                          through paragraph (b) of the proposed
                                                  Operating Committee on CBOE’s                                                  operates pursuant to Rule 301 of                                                fee schedule. Paragraph (b)(1) of the
                                                  Industry Members. The proposed fee                                             Regulation ATS. This is the same                                                proposed fee schedule sets forth the
                                                  schedule has three sections, covering                                          definition of an ATS as set forth in                                            CAT Fees applicable to Industry
                                                  definitions, the fee schedule for CAT                                          Section 1.1 of the CAT NMS Plan in the                                          Members other than Equity ATSs.
                                                  Fees, and the timing and manner of                                             definition of an ‘‘Execution Venue.’’                                           Specifically, paragraph (b)(1) states that
                                                  payments. Each of these sections is                                            Then, paragraph (a)(4) defines an                                               the Company will assign each Industry
                                                  discussed in detail below.                                                     ‘‘Equity ATS’’ as an ATS that executes                                          Member (other than an Equity ATS) to
                                                  (A) Definitions                                                                transactions in NMS Stocks and/or OTC                                           a fee tier once every quarter, where such
                                                                                                                                 Equity Securities.                                                              tier assignment is calculated by ranking
                                                     Paragraph (a) of the proposed fee                                              Paragraph (a)(3) of the proposed fee                                         each Industry Member based on its total
                                                  schedule sets forth the definitions for                                        schedule defines the term ‘‘CAT Fee’’ to                                        message traffic for the three months
                                                  the proposed fee schedule. Paragraph                                           mean the Consolidated Audit Trail                                               prior to the quarterly tier calculation
                                                  (a)(1) states that, for purposes of the                                        Funding Fee(s) to be paid by Industry                                           day and assigning each Industry
                                                  Consolidated Audit Trail Funding Fees,                                         Members as set forth in paragraph (b) in                                        Member to a tier based on that ranking
                                                  the terms ‘‘CAT NMS Plan,’’ ‘‘Industry                                         the proposed fee schedule.                                                      and predefined Industry Member
                                                  Member,’’ ‘‘NMS Stock,’’ ‘‘OTC Equity                                             Finally, Paragraph (a)(6) defines an                                         percentages. The Industry Members
                                                  Security’’, and ‘‘Participant’’ are defined                                    ‘‘Execution Venue’’ as a Participant or                                         with the highest total quarterly message
                                                  as set forth in Rule 6.85 (Consolidated                                        an ATS (excluding any such ATS that                                             traffic will be ranked in Tier 1, and the
                                                  Audit Trail (CAT) Compliance Rule—                                             does not execute orders). This definition                                       Industry Members with lowest quarterly
                                                  Definitions)                                                                   is the same substantive definition as set                                       message traffic will be ranked in Tier 9.
                                                     The proposed fee schedule imposes                                           forth in Section 1.1 of the CAT NMS                                             Each quarter, each Industry Member
                                                  different fees on Equity ATSs and                                              Plan. Paragraph (a)(5) defines an                                               (other than an Equity ATS) shall pay the
                                                  Industry Members that are not Equity                                           ‘‘Equity Execution Venue’’ as an                                                following CAT Fee corresponding to the
                                                  ATSs. Accordingly, the proposed fee                                            Execution Venue that trades NMS                                                 tier assigned by the Company for such
                                                  schedule defines the term ‘‘Equity                                             Stocks and/or OTC Equity Securities.                                            Industry Member for that quarter:

                                                                                                                                                                                                                                        Percentage of    Quarterly
                                                                                                                                        Tier                                                                                              Industry       CAT fee
                                                                                                                                                                                                                                          Members

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

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



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                                                                                              Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices                                                                                        25421

                                                                                                                                                                                                                                        Percentage of
                                                                                                                                                                                                                                           Equity        Quarterly
                                                                                                                                       Tier                                                                                              Execution       CAT fee
                                                                                                                                                                                                                                           Venues

                                                  1 ...............................................................................................................................................................................              25.00      $63,375
                                                  2 ...............................................................................................................................................................................              75.00       38,820



                                                  (C) Timing and Manner of Payment                                              due, such Industry Member shall pay                                               CBOE believes that this proposal is
                                                    Section 11.4 of the CAT NMS Plan                                            interest on the outstanding balance from                                       consistent with the Act because it
                                                  states that the Operating Committee                                           such due date until such fee is paid at                                        implements, interprets or clarifies the
                                                  shall establish a system for the                                              a per annum rate equal to the lesser of:                                       provisions of the Plan, and is designed
                                                  collection of fees authorized under the                                       (i) The Prime Rate plus 300 basis points;                                      to assist CBOE and its Industry
                                                  CAT NMS Plan. The Operating                                                   or (ii) the maximum rate permitted by                                          Members in meeting regulatory
                                                  Committee may include such collection                                         applicable law. Therefore, in accordance                                       obligations pursuant to the Plan. In
                                                  responsibility as a function of the Plan                                      with Section 11.4 of the CAT NMS Plan,                                         approving the Plan, the SEC noted that
                                                  Processor or another administrator. To                                        CBOE proposes to adopt paragraph                                               the Plan ‘‘is necessary and appropriate
                                                  implement the payment process to be                                           (c)(2) of the proposed fee schedule.                                           in the public interest, for the protection
                                                  adopted by the Operating Committee,                                           Paragraph (c)(2) of the proposed fee                                           of investors and the maintenance of fair
                                                  paragraph (c)(1) of the proposed fee                                          schedule states that each Industry                                             and orderly markets, to remove
                                                  schedule states that the Company will                                         Member shall pay CAT Fees within                                               impediments to, and perfect the
                                                  provide each Industry Member with one                                         thirty days after receipt of an invoice or                                     mechanism of a national market system,
                                                  invoice each quarter for its CAT Fees as                                      other notice indicating payment is due                                         or is otherwise in furtherance of the
                                                  determined pursuant to paragraph (b) of                                       (unless a longer payment period is                                             purposes of the Act.’’ 54 To the extent
                                                  the proposed fee schedule, regardless of                                      otherwise indicated). If an Industry                                           that this proposal implements,
                                                  whether the Industry Member is a                                              Member fails to pay any such fee when                                          interprets or clarifies the Plan and
                                                  member of multiple self-regulatory                                            due, such Industry Member shall pay                                            applies specific requirements to
                                                  organizations. Paragraph (c)(1) further                                       interest on the outstanding balance from                                       Industry Members, CBOE believes that
                                                  states that each Industry Member will                                         such due date until such fee is paid at                                        this proposal furthers the objectives of
                                                  pay its CAT Fees to the Company via                                           a per annum rate equal to the lesser of:                                       the Plan, as identified by the SEC, and
                                                  the centralized system for the collection                                     (i) The Prime Rate plus 300 basis points;                                      is therefore consistent with the Act.
                                                  of CAT Fees established by the                                                or (ii) the maximum rate permitted by                                             CBOE believes that the proposed
                                                  Company in the manner prescribed by                                           applicable law.                                                                tiered fees are reasonable. First, the total
                                                  the Company. CBOE will provide                                                                                                                               CAT Fees to be collected would be
                                                  Industry Members with details                                                 2. Statutory Basis                                                             directly associated with the costs of
                                                  regarding the manner of payment of                                                                                                                           establishing and maintaining the CAT,
                                                                                                                                   CBOE believes that the proposed rule                                        where such costs include Plan Processor
                                                  CAT Fees by Regulatory Circular.
                                                    Although the exact fee collection                                           change is consistent with the provisions                                       costs and costs related to insurance,
                                                  system and processes for CAT fees has                                         of Section 6(b)(5) of the Act,52 which                                         third party services and the operational
                                                  not yet been established, all CAT fees                                        require, among other things, that CBOE                                         reserve. The CAT Fees would not cover
                                                  will be billed and collected centrally                                        rules must be designed to prevent                                              Participant services unrelated to the
                                                  through the Company, via the Plan                                             fraudulent and manipulative acts and                                           CAT. In addition, any surplus CAT Fees
                                                  Processor or otherwise. Although each                                         practices, to promote just and equitable                                       cannot be distributed to the individual
                                                  Participant will adopt its own fee                                            principles of trade, and, in general, to                                       Participants; such surpluses must be
                                                  schedule regarding CAT Fees, no CAT                                           protect investors and the public interest,                                     used as a reserve to offset future fees.
                                                  Fees or portion thereof will be collected                                     and not designed to permit unfair                                              Given the direct relationship between
                                                  by the individual Participants. Each                                          discrimination between customers,                                              the fees and the CAT costs, CBOE
                                                  Industry Member will receive from the                                         issuers, brokers and dealers, and Section                                      believes that the total level of the CAT
                                                  Company one invoice for its applicable                                        6(b)(4) of the Act,53 which requires that                                      Fees is reasonable.
                                                  CAT fees, not separate invoices from                                          CBOE rules provide for the equitable                                              In addition, CBOE believes that the
                                                  each Participant of which it is a                                             allocation of reasonable dues, fees, and                                       proposed CAT Fees are reasonably
                                                  member. The Industry Members will                                             other charges among members and                                                designed to allocate the total costs of the
                                                  pay the CAT Fees to the Company via                                           issuers and other persons using its                                            CAT equitably between and among the
                                                  the centralized system for the collection                                     facilities. As discussed above, the SEC                                        Participants and Industry Members, and
                                                  of CAT fees established by the                                                approved the bifurcated, tiered, fixed                                         are therefore not unfairly
                                                  Company.51                                                                    fee funding model in the CAT NMS                                               discriminatory. As discussed in detail
                                                    Section 11.4 of the CAT NMS Plan                                            Plan, finding it was reasonable and that                                       above, the proposed tiered fees impose
                                                  also states that Participants shall require                                   it equitably allocated fees among                                              comparable fees on similarly situated
                                                  each Industry Member to pay all                                               Participants and Industry Members.                                             CAT Reporters. For example, those with
                                                  applicable authorized CAT Fees within                                         CBOE believes that the proposed tiered                                         a larger impact on the CAT (measured
                                                  thirty days after receipt of an invoice or                                    fees adopted pursuant to the funding                                           via message traffic or market share) pay
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                                                  other notice indicating payment is due                                        model approved by the SEC in the CAT                                           higher fees, whereas CAT Reporters
                                                  (unless a longer payment period is                                            NMS Plan are reasonable, equitably                                             with a smaller impact pay lower fees.
                                                  otherwise indicated). Section 11.4                                            allocated and not unfairly                                                     Correspondingly, the tiered structure
                                                  further states that, if an Industry                                           discriminatory.                                                                lessens the impact on smaller CAT
                                                  Member fails to pay any such fee when                                                                                                                        Reporters by imposing smaller fees on
                                                                                                                                   52 15   U.S.C. 78f(b)(5).
                                                    51 Section     11.4 of the CAT NMS Plan.                                       53 15   U.S.C. 78f(b)(4).                                                      54 Approval         Order at 84697.



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                                                  25422                             Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices

                                                  those CAT Reporters with less market                          Moreover, as previously described,                    investors, or otherwise in furtherance of
                                                  share or message traffic. In addition, the                 CBOE believes that the proposed rule                     the purposes of the Act. If the
                                                  funding model takes into consideration                     change fairly and equitably allocates                    Commission takes such action, the
                                                  affiliations between CAT Reporters,                        costs among CAT Reporters. In                            Commission will institute proceedings
                                                  imposing comparable fees on such                           particular, the proposed fee schedule is                 to determine whether the proposed rule
                                                  affiliated entities.                                       structured to impose comparable fees on                  change should be approved or
                                                     Moreover, CBOE believes that the                        similarly situated CAT Reporters, and                    disapproved.
                                                  division of the total CAT costs between                    lessen the impact on smaller CAT
                                                                                                                                                                      IV. Solicitation of Comments
                                                  Industry Members and Execution                             Reporters. CAT Reporters with similar
                                                  Venues, and the division of the                            levels of CAT activity will pay similar                    Interested persons are invited to
                                                  Execution Venue portion of total costs                     fees. For example, Industry Members                      submit written data, views, and
                                                  between Equity and Options Execution                       (other than Execution Venue ATSs) with                   arguments concerning the foregoing,
                                                  Venues, is reasonably designed to                          higher levels of message traffic will pay                including whether the proposed rule
                                                  allocate CAT costs among CAT                               higher fees, and those with lower levels                 change is consistent with the Act.
                                                  Reporters. The 75/25 division between                      of message traffic will pay lower fees.                  Comments may be submitted by any of
                                                  Industry Members and Execution                             Similarly, Execution Venue ATSs and                      the following methods:
                                                  Venues maintains the greatest level of                     other Execution Venues with larger                       Electronic Comments
                                                  comparability across the funding model,                    market share will pay higher fees, and
                                                                                                             those with lower levels of market share                    • Use the Commission’s Internet
                                                  keeping in view that comparability                                                                                  comment form (http://www.sec.gov/
                                                  should consider affiliations among or                      will pay lower fees. Therefore, given
                                                                                                             that there is generally a relationship                   rules/sro.shtml); or
                                                  between CAT Reporters (e.g., firms with                                                                               • Send an email to rule-comments@
                                                  multiple Industry Members or exchange                      between message traffic and market
                                                                                                                                                                      sec.gov. Please include File Number SR–
                                                  licenses). Similarly, the 75/25 division                   share to the CAT Reporter’s size, smaller
                                                                                                                                                                      CBOE–2017–040 on the subject line.
                                                  between Equity and Options Execution                       CAT Reporters generally pay less than
                                                  Venues maintains elasticity across the                     larger CAT Reporters. Accordingly,                       Paper Comments
                                                  funding model as well as the greatest                      CBOE does not believe that the CAT                          • Send paper comments in triplicate
                                                  level of fee equitability and                              Fees would have a disproportionate                       to Secretary, Securities and Exchange
                                                  comparability based on the current                         effect on smaller or larger CAT                          Commission, 100 F Street NE.,
                                                  number of Equity and Options                               Reporters. In addition, ATSs and                         Washington, DC 20549–1090.
                                                  Execution Venues.                                          exchanges will pay the same fees based                   All submissions should refer to File
                                                     Finally, CBOE believes that the                         on market share. Therefore, CBOE does                    Number SR–CBOE–2017–040. This file
                                                  proposed fees are reasonable because                       not believe that the fees will impose any                number should be included on the
                                                  they would provide ease of calculation,                    burden on the competition between                        subject line if email is used. To help the
                                                  ease of billing and other administrative                   ATSs and exchanges. Accordingly,                         Commission process and review your
                                                  functions, and predictability of a fixed                   CBOE believes that the proposed fees                     comments more efficiently, please use
                                                  fee. Such factors are crucial to                           will minimize the potential for adverse                  only one method. The Commission will
                                                  estimating a reliable revenue stream for                   effects on competition between CAT                       post all comments on the Commission’s
                                                  the Company and for permitting CAT                         Reporters in the market.                                 Internet Web site (http://www.sec.gov/
                                                  Reporters to reasonably predict their                         Furthermore, the tiered, fixed fee
                                                                                                                                                                      rules/sro.shtml). Copies of the
                                                  payment obligations for budgeting                          funding model limits the disincentives
                                                                                                                                                                      submission, all subsequent
                                                  purposes.                                                  to providing liquidity to the market.
                                                                                                                                                                      amendments, all written statements
                                                                                                             Therefore, the proposed fees are
                                                  B. Self-Regulatory Organization’s                                                                                   with respect to the proposed rule
                                                                                                             structured to limit burdens on
                                                  Statement on Burden on Competition                                                                                  change that are filed with the
                                                                                                             competitive quoting and other liquidity
                                                                                                                                                                      Commission, and all written
                                                     Section 6(b)(8) of the Act 55 require                   provision in the market.
                                                                                                                                                                      communications relating to the
                                                  that CBOE rules not impose any burden                      C. Self-Regulatory Organization’s                        proposed rule change between the
                                                  on competition that is not necessary or                    Statement on Comments on the                             Commission and any person, other than
                                                  appropriate. CBOE does not believe that                    Proposed Rule Change Received From                       those that may be withheld from the
                                                  the proposed rule change will result in                    Members, Participants, or Others                         public in accordance with the
                                                  any burden on competition that is not                        Written comments were neither                          provisions of 5 U.S.C. 552, will be
                                                  necessary or appropriate in furtherance                    solicited nor received.                                  available for Web site viewing and
                                                  of the purposes of the Act. CBOE notes                                                                              printing in the Commission’s Public
                                                  that the proposed rule change                              III. Date of Effectiveness of the                        Reference Room, 100 F Street NE.,
                                                  implements provisions of the CAT NMS                       Proposed Rule Change and Timing for                      Washington, DC 20549 on official
                                                  Plan approved by the Commission, and                       Commission Action                                        business days between the hours of
                                                  is designed to assist CBOE in meeting its                     The foregoing rule change has become                  10:00 a.m. and 3:00 p.m. Copies of the
                                                  regulatory obligations pursuant to the                     effective pursuant to Section 19(b)(3)(A)                filing also will be available for
                                                  Plan. Similarly, all national securities                   of the Act 56 and paragraph (f) of Rule                  inspection and copying at the principal
                                                  exchanges and FINRA are proposing                          19b–4 57 thereunder. At any time within                  office of the Exchange. All comments
                                                  this proposed fee schedule to                              60 days of the filing of the proposed rule               received will be posted without change;
                                                  implement the requirements of the CAT                      change, the Commission summarily may                     the Commission does not edit personal
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                                                  NMS Plan. Therefore, this is not a                         temporarily suspend such rule change if                  identifying information from
                                                  competitive fee filing and, therefore, it                  it appears to the Commission that such                   submissions. You should submit only
                                                  does not raise competition issues                          action is necessary or appropriate in the                information that you wish to make
                                                  between and among the exchanges and                        public interest, for the protection of                   available publicly. All submissions
                                                  FINRA.                                                                                                              should refer to File Number SR–CBOE–
                                                                                                              56 15   U.S.C. 78s(b)(3)(A).                            2017–040 and should be submitted on
                                                    55 15   U.S.C. 78f(b)(8).                                 57 17   CFR 240.19b–4(f).                               or before June 22, 2017.


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                                                                                 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices                                                       25423

                                                    For the Commission, by the Division of                proposed rule change and discussed any                   CAT NMS Plan that are applicable to
                                                  Trading and Markets, pursuant to delegated              comments it received on the proposed                     FINRA members.9
                                                  authority.58                                            rule change. The text of these statements                   The CAT NMS Plan is designed to
                                                  Eduardo A. Aleman,                                      may be examined at the places specified                  create, implement, and maintain a
                                                  Assistant Secretary.                                    in Item IV below. FINRA has prepared                     consolidated audit trail that will capture
                                                  [FR Doc. 2017–11361 Filed 5–31–17; 8:45 am]             summaries, set forth in sections A, B,                   in a single consolidated data source
                                                  BILLING CODE 8011–01–P                                  and C below, of the most significant                     customer and order event information
                                                                                                          aspects of such statements.                              for orders in NMS Securities and OTC
                                                                                                                                                                   Equity Securities, across all markets,
                                                  SECURITIES AND EXCHANGE                                 A. Self-Regulatory Organization’s                        from the time of order inception through
                                                  COMMISSION                                              Statement of the Purpose of, and                         routing, cancellation, modification, or
                                                                                                          Statutory Basis for, the Proposed Rule                   execution. Among other things, Section
                                                  [Release No. 34–80783; File No. SR–FINRA–               Change                                                   C.9. of Appendix C to the Plan, as
                                                  2017–013]
                                                                                                          1. Purpose                                               modified by the Commission, requires
                                                  Self-Regulatory Organizations;                                                                                   each Participant to ‘‘file with the SEC
                                                  Financial Industry Regulatory                           (1) Background                                           the relevant rule change filing to
                                                  Authority, Inc.; Notice of Filing of                                                                             eliminate or modify its duplicative rules
                                                                                                             Bats BYX Exchange, Inc.; Bats BZX                     within six (6) months of the SEC’s
                                                  Proposed Rule Change To Eliminate                       Exchange, Inc.; Bats EDGA Exchange,
                                                  Requirements That Will Be Duplicative                                                                            approval of the CAT NMS Plan.’’ 10 The
                                                                                                          Inc.; Bats EDGX Exchange, Inc.; BOX                      Plan notes that ‘‘the elimination of such
                                                  of CAT                                                  Options Exchange LLC; C2 Options                         rules and the retirement of such systems
                                                  May 26, 2017.                                           Exchange, Incorporated; Chicago Board                    [will] be effective at such time as CAT
                                                     Pursuant to Section 19(b)(1) of the                  Options Exchange, Incorporated;                          Data meets minimum standards of
                                                  Securities Exchange Act of 1934                         Chicago Stock Exchange, Inc.; FINRA;                     accuracy and reliability.’’ 11 Finally, the
                                                  (‘‘Act’’) 1 and Rule 19b–4 thereunder,2                 International Securities Exchange, LLC;                  Plan requires the rule filing to discuss
                                                  notice is hereby given that on May 15,                  Investors’ Exchange LLC; ISE Gemini,                     the following:
                                                  2017, Financial Industry Regulatory                     LLC; ISE Mercury, LLC; Miami                                (i) Specific accuracy and reliability
                                                  Authority, Inc. (‘‘FINRA’’) (f/k/a                      International Securities Exchange LLC;                   standards that will determine when
                                                  National Association of Securities                      MIAX PEARL, LLC; NASDAQ BX, Inc.;                        duplicative systems will be retired,
                                                  Dealers, Inc. (‘‘NASD’’)) filed with the                NASDAQ PHLX LLC; The NASDAQ                              including, but not limited to, whether
                                                  Securities and Exchange Commission                      Stock Market LLC; National Stock                         the attainment of a certain Error Rate
                                                  (‘‘SEC’’ or ‘‘Commission’’) the proposed                Exchange, Inc.; New York Stock                           should determine when a system
                                                  rule change as described in Items I, II,                Exchange LLC; NYSE MKT LLC; and                          duplicative of the CAT can be retired;
                                                  and III below, which Items have been                    NYSE Arca, Inc. (collectively, the                          (ii) whether the availability of certain
                                                  prepared by FINRA. The Commission is                    ‘‘Participants’’) filed with the                         data from Small Industry Members two
                                                  publishing this notice to solicit                       Commission, pursuant to Section 11A of                   years after the Effective Date would
                                                  comments on the proposed rule change                    the Exchange Act 3 and Rule 608 of                       facilitate a more expeditious retirement
                                                  from interested persons.                                Regulation NMS thereunder,4 the                          of duplicative systems; and
                                                                                                          National Market System Plan Governing                       (iii) whether individual Industry
                                                  I. Self-Regulatory Organization’s                       the Consolidated Audit Trail (the ‘‘CAT                  Members can be exempted from
                                                  Statement of the Terms of Substance of                  NMS Plan’’ or ‘‘Plan’’).5 The                            reporting to duplicative systems once
                                                  the Proposed Rule Change                                Participants filed the Plan to comply                    their CAT reporting meets specified
                                                     FINRA is proposing to eliminate the                  with Rule 613 of Regulation NMS under                    accuracy and reliability standards,
                                                  Order Audit Trail System (‘‘OATS’’)                     the Exchange Act.6 The Plan was                          including, but not limited to, ways in
                                                  rules in the FINRA Rule 7400 Series and                 published for comment in the Federal                     which establishing cross-system
                                                  to amend FINRA’s electronic blue sheet                  Register on May 17, 2016,7 and                           regulatory functionality or integrating
                                                  (‘‘EBS’’) rules, Rules 8211 and 8213, to                approved by the Commission, as                           data from existing systems and the CAT
                                                  reflect changes to these rules once                     modified, on November 15, 2016.8 On                      would facilitate such Individual
                                                  members are effectively reporting to the                March 15, 2017, the Commission                           Industry Member exemptions.12
                                                  consolidated audit trail (‘‘CAT’’) and the              approved the new FINRA Rule 6800                            In response to these requirements, the
                                                  CAT’s accuracy and reliability meet                     Series to implement provisions of the                    proposed rule change deletes the Rule
                                                  certain standards as described below.                                                                            7400 Series (the ‘‘OATS Rules’’) 13 and
                                                     The text of the proposed rule change                   3 15  U.S.C. 78k–1.                                    Rule 4554 from the FINRA rulebook and
                                                  is available on FINRA’s Web site at                       4 17  CFR 242.608.                                     adds new Supplementary Material to
                                                                                                             5 See Letter from the Participants to Brent J.
                                                  http://www.finra.org, at the principal                                                                           FINRA’s EBS rules, Rules 8211 and
                                                                                                          Fields, Secretary, Commission, dated September 30,
                                                  office of FINRA and at the                              2014; and Letter from Participants to Brent J. Fields,
                                                                                                                                                                   8213, once the CAT achieves the
                                                  Commission’s Public Reference Room.                     Secretary, Commission, dated February 27, 2015.
                                                                                                                                                                     9 Securities Exchange Act Rel. No. 80255 (March
                                                                                                          On December 24, 2015, the Participants submitted
                                                  II. Self-Regulatory Organization’s                      an amendment to the CAT NMS Plan. See Letter             15, 2017), 82 FR 14563 (March 21, 2017).
                                                  Statement of the Purpose of, and                        from Participants to Brent J. Fields, Secretary,           10 CAT NMS Plan, Appendix C, Section C.9.

                                                  Statutory Basis for, the Proposed Rule                  Commission, dated December 23, 2015. Unless                11 See id.
                                                                                                          otherwise specified, capitalized terms used in this        12 See id.
                                                  Change
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                                                                                                          rule filing are defined as set forth herein, or in the     13 FINRA notes that there are multiple rules
                                                    In its filing with the Commission,                    CAT Compliance Rule Series or in the CAT NMS             throughout the FINRA Rulebook that cross-
                                                                                                          Plan.
                                                  FINRA included statements concerning                       6 17 CFR 242.613.
                                                                                                                                                                   reference or otherwise incorporate some or all of the
                                                  the purpose of and basis for the                                                                                 OATS Rules. If the Commission approves the
                                                                                                             7 Securities Exchange Act Rel. No. 77724 (April
                                                                                                                                                                   proposed rule change, FINRA will file a subsequent
                                                                                                          27, 2016), 81 FR 30614 (May 17, 2016).                   proposed rule change to eliminate or amend, as
                                                    58 17 CFR 200.30–3(a)(12).                               8 Securities Exchange Act Rel. No. 79318              applicable, the references to the OATS Rules before
                                                    1 15 U.S.C. 78s(b)(1).                                (November 15, 2016), 81 FR 84696 (November 23,           the amendments in the current proposed rule
                                                    2 17 CFR 240.19b–4.                                   2016) (‘‘Approval Order’’).                              change are implemented.



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Document Created: 2017-06-01 03:05:12
Document Modified: 2017-06-01 03:05:12
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 25404 

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