82 FR 25474 - Self-Regulatory Organizations; C2 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)
Federal Register Volume 82, Issue 104 (June 1, 2017)
| Page Range | 25474-25491 | |
| FR Document | 2017-11362 |
[Federal Register Volume 82, Number 104 (Thursday, June 1, 2017)] [Notices] [Pages 25474-25491] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-11362] [[Page 25474]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80786; File No. SR-C2-2017-017] Self-Regulatory Organizations; C2 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, C2 Options Exchange, Incorporated (the ``Exchange'' or ``C2'') 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- 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 National Market System Plan Governing the Consolidated Audit Trail. The text of the proposed rule change is available on the Exchange's Web site (http://www.c2exchange.com/Legal/), 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 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, C2 submits this fee filing to propose the Consolidated Audit Trail Funding Fees, which will require Industry Members that are C2 Trading Permit Holders to pay the CAT Fees determined by the Operating Committee. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- (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 ModelCAT 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\) --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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'') [[Page 25475]] 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. C2 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. (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\ --------------------------------------------------------------------------- \14\ Approval Order at 84796. \15\ Id. at 84794. --------------------------------------------------------------------------- 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: --------------------------------------------------------------------------- \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\ --------------------------------------------------------------------------- \17\ Id. at 84794. Accordingly, the funding model imposes fees on both Participants and --------------------------------------------------------------------------- Industry Members. In addition, as discussed in Appendix C of the CAT NMS Plan, the Operating Committee considered the advantages and disadvantages of a variety of alternative funding and cost allocation models before selecting the proposed model.\18\ After analyzing the various alternatives, the Operating Committee determined that the proposed tiered, fixed fee funding model provides a variety of advantages in comparison to the alternatives. First, the fixed fee model, as opposed to a variable fee model, provides transparency, ease of calculation, ease of billing and other administrative functions, and predictability of a fixed fee. Such factors are crucial to estimating a reliable revenue stream for the Company and for permitting CAT Reporters to reasonably predict their payment obligations for budgeting purposes.\19\ Additionally, a [[Page 25476]] 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \21\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order at 85006. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \22\ Approval Order at 85005. \23\ Id. \24\ Id. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- The CAT NMS Plan provides that the Operating Committee will use different criteria to establish fees for Execution Venues and non- Execution Venues due to the fundamental differences between the two types of entities. In particular, the CAT NMS Plan provides that fees charged to CAT Reporters that are Execution Venues will be based on the level of market share and that costs charged to Industry Members (other than Execution Venue ATSs) will be based upon message traffic.\28\ Because most Participant message traffic consists of quotations, and Participants usually disseminate quotations in all instruments they trade, regardless of execution volume, Execution Venues that are Participants generally disseminate similar amounts of message traffic. Accordingly, basing fees for Execution Venues on message traffic would not provide the same degree of differentiation among Execution Venues that it does among Industry Members (other than Execution Venue ATSs). In contrast, execution volume more accurately delineates the different levels of trading activity of Execution Venues.\29\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \30\ Section 11.2(e) of the CAT NMS Plan. \31\ Approval Order at 84796. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \32\ Id. at 84792. \33\ 26 U.S.C. 501(c)(6). \34\ Approval Order at 84793. --------------------------------------------------------------------------- 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, [[Page 25477]] 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. C2 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 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 [[Page 25478]] 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]. [GRAPHIC] [TIFF OMITTED] TN01JN17.012 ------------------------------------------------------------------------ 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: [[Page 25479]] ---------------------------------------------------------------------------------------------------------------- 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 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 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., [[Page 25480]] 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 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 Percentage of Equity Execution Percentage of Equity Execution Venue tier Execution Venue total Venues recovery recovery ---------------------------------------------------------------------------------------------------------------- Tier 1.......................................................... 25.00 26.00 6.50 Tier 2.......................................................... 75.00 49.00 12.25 ----------------------------------------------- Total....................................................... 100 75 18.75 ---------------------------------------------------------------------------------------------------------------- [[Page 25481]] 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 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 Percentage of Options Execution Percentage of Options Execution Venue tier Execution Venue total Venues (%) recovery (%) 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]. [[Page 25482]] ------------------------------------------------------------------------ Options market share Options Execution Venue tier 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 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 [[Page 25483]] 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 --------------- 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 Venue ATSs): --------------------------------------------------------------------------- \43\ This column represents the approximate total CAT Fees paid each year by each Industry Member (other than Execution Venue ATSs) (i.e., ``CAT Fees Paid Annually'' = ``Monthly CAT Fee'' x 12 months). ---------------------------------------------------------------------------------------------------------------- Monthly CAT Quarterly CAT CAT fees paid Tier fee fee annually \43\ ---------------------------------------------------------------------------------------------------------------- 1............................................................... $33,668 $101,004 $404,016 2............................................................... 27,051 81,153 324,612 3............................................................... 19,239 57,717 230,868 4............................................................... 6,655 19,965 79,860 5............................................................... 4,163 12,489 49,956 6............................................................... 2,560 7,680 30,720 7............................................................... 501 1,503 6,012 8............................................................... 145 435 1,740 9............................................................... 22 66 264 ---------------------------------------------------------------------------------------------------------------- For Execution Venues for NMS Stocks and OTC Equity Securities: --------------------------------------------------------------------------- \44\ This column represents the approximate total CAT Fees paid each year by each Execution Venue for NMS Stocks and OTC Equity Securities (i.e., ``CAT Fees Paid Annually'' = ``Monthly CAT Fee'' x 12 months). ---------------------------------------------------------------------------------------------------------------- Monthly CAT Quarterly CAT CAT fees paid Tier fee fee annually \44\ ---------------------------------------------------------------------------------------------------------------- 1............................................................... $21,125 $63,375 $253,500 2............................................................... 12,940 38,820 155,280 ---------------------------------------------------------------------------------------------------------------- For Execution Venues for Listed Options: --------------------------------------------------------------------------- \45\ This column represents the approximate total CAT Fees paid each year by each Execution Venue for Listed Options (i.e., ``CAT Fees Paid Annually'' = ``Monthly CAT Fee'' x 12 months). ---------------------------------------------------------------------------------------------------------------- Monthly CAT Quarterly CAT CAT fees paid Tier fee fee annually \45\ ---------------------------------------------------------------------------------------------------------------- 1............................................................... $19,205 $57,615 $230,460 2............................................................... 13,204 39,612 158,448 ---------------------------------------------------------------------------------------------------------------- [[Page 25484]] As noted above, the fees set forth in the tables reflect the Operating Committee's decision to ensure comparable fees between Execution Venues and Industry Members. The fees of the top tiers for Industry Members (other than Execution Venue ATSs) are not identical to the top tier for Execution Venues, however, because the Operating Committee also determined that the fees for Execution Venue complexes should be comparable to those of Industry Member complexes. The difference in the fees reflects this decision to recognize affiliations. The Operating Committee has calculated the schedule of effective fees for Industry Members (other than Execution Venue ATSs) and Execution Venues in the following manner. Note that the calculation of CAT Reporter fees assumes 53 Equity Execution Venues, 15 Options Execution Venues and 1,631 Industry Members (other than Execution Venue ATSs) as of January 2017. Calculation of Annual Tier Fees for Industry Members (``IM'') ---------------------------------------------------------------------------------------------------------------- Percentage of Percentage of Industry Percentage of Industry Member tier Industry Member total recovery Members recovery ---------------------------------------------------------------------------------------------------------------- Tier 1.......................................................... 0.500 8.50 6.38 Tier 2.......................................................... 2.500 35.00 26.25 Tier 3.......................................................... 2.125 21.25 15.94 Tier 4.......................................................... 4.625 15.75 11.81 Tier 5.......................................................... 3.625 7.75 5.81 Tier 6.......................................................... 4.000 5.25 3.94 Tier 7.......................................................... 17.500 4.50 3.38 Tier 8.......................................................... 20.125 1.50 1.13 Tier 9.......................................................... 45.000 0.50 0.38 ----------------------------------------------- Total....................................................... 100 100 75 ---------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ Estimated number of Industry Member tier Industry Members ------------------------------------------------------------------------ Tier 1.................................................. 8 Tier 2.................................................. 41 Tier 3.................................................. 35 Tier 4.................................................. 75 Tier 5.................................................. 59 Tier 6.................................................. 65 Tier 7.................................................. 285 Tier 8.................................................. 328 Tier 9.................................................. 735 --------------- Total............................................... 1,631 ------------------------------------------------------------------------ BILLING CODE 8011-01-P [[Page 25485]] [GRAPHIC] [TIFF OMITTED] TN01JN17.013 BILLING CODE 8011-01-C ---------------------------------------------------------------------------------------------------------------- Percentage of Percentage of Equity Execution Percentage of Equity Execution Venue tier Execution Venue total Venues recovery 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 [[Page 25486]] Tier 2.................................................. 40 --------------- Total............................................... 53 ------------------------------------------------------------------------ [GRAPHIC] [TIFF OMITTED] TN01JN17.014 Calculaton of Annual Tier Fees for Options Execution Venues (``EV'') ---------------------------------------------------------------------------------------------------------------- Percentage of Percentage of Options Execution Percentage of Options Execution Venue tier Execution Venue total Venues recovery 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 ------------------------------------------------------------------------ [GRAPHIC] [TIFF OMITTED] TN01JN17.015 [[Page 25487]] Traceability of Total CAT Fees ---------------------------------------------------------------------------------------------------------------- Estimated Type Industry Member tier number of CAT fees paid Total members annually recovery ---------------------------------------------------------------------------------------------------------------- Industry Members.................... Tier 1.................... 8 $404,016 $3,232,128 Tier 2.................... 41 324,612 13,309,092 Tier 3.................... 35 230,868 8,080,380 Tier 4.................... 75 79,860 5,989,500 Tier 5.................... 59 49,956 2,947,404 Tier 6.................... 65 30,720 1,996,800 Tier 7.................... 285 6,012 1,713,420 Tier 8.................... 328 1,740 570,720 Tier 9.................... 735 264 194,040 ----------------------------------------------- Total........................... .......................... 1,631 .............. 38,033,484 ---------------------------------------------------------------------------------------------------------------- Equity Execution Venues............. Tier 1.................... 13 253,500 3,295,500 Tier 2.................... 40 155,280 6,211,200 ----------------------------------------------- Total........................... .......................... 53 .............. 9,506,700 ---------------------------------------------------------------------------------------------------------------- Options Execution Venues............ Tier 1.................... 11 230,460 2,535,060 Tier 2.................... 4 158,448 633,792 ----------------------------------------------- Total........................... .......................... 15 .............. 3,168,852 ---------------------------------------------------------------------------------------------------------------- Total....................... .......................... .............. .............. $50,709,036 ----------------------------------------------- Excess \46\................. .......................... .............. .............. $9,036 ---------------------------------------------------------------------------------------------------------------- (F) Comparability of Fees --------------------------------------------------------------------------- \46\ The amount in excess of the total CAT costs will contribute to the gradual accumulation of the target operating reserve of $11.425 million. --------------------------------------------------------------------------- The funding principles require a funding model in which the fees charged to the CAT Reporters with the most CAT-related activity (measured by market share and/or message traffic, as applicable) are generally comparable (where, for these comparability purposes, the tiered fee structure takes into consideration affiliations between or among CAT Reporters, whether Execution Venue and/or Industry Members). Accordingly, in creating the model, the Operating Committee sought to take account of the affiliations between or among CAT Reporters--that is, where affiliated entities may have multiple Industry Member and/or Execution Venue licenses, by maintaining relative comparability of fees among such affiliations with the most expected CAT-related activity. To do this, the Participants identified representative affiliations in the largest tier of both Execution Venues and Industry Members and compared the aggregate fees that would be paid by such firms. While the proposed fees for Tier 1 and Tier 2 Industry Members are relatively higher than those of Tier 1 and Tier 2 Execution Venues, Execution Venue complex fees are relatively higher than those of Industry Member complexes largely due to affiliations between Execution Venues. The tables set forth below describe the largest Execution Venue and Industry Member complexes and their associated fees: \47\ --------------------------------------------------------------------------- \47\ Note that the analysis of the complexes was performed on a best efforts basis, as all affiliations between the 1631 Industry Members may not be included. Execution Venue Complexes ---------------------------------------------------------------------------------------------------------------- Listing of Equity Listing of Options Total fees by Execution Venue complex Execution Venue tiers Execution Venue tier EV complex ---------------------------------------------------------------------------------------------------------------- Execution Venue Complex 1............... Tier 1 (x2)...... Tier 1 (x4)...... $1,900,962 Tier 2 (x1)...... Tier 2 (x2)...... Execution Venue Complex 2............... Tier 1 (x2)...... Tier 1 (x2)...... 1,863,801 Tier 2 (x1)...... Execution Venue Complex 3............... Tier 1 (x2)...... Tier 1 (x2)...... 1,278,447 Tier 2 (x2)...... ---------------------------------------------------------------------------------------------------------------- Industry Member Complexes ---------------------------------------------------------------------------------------------------------------- Listing of Industry Member Total fees by Industry Member complex tiers Listing of ATS tiers IM complex ---------------------------------------------------------------------------------------------------------------- Industry Member Complex 1............... Tier 1 (x2)...... Tier 2 (x1)...... $963,300 Industry Member Complex 2............... Tier 1 (x1)...... Tier 2 (x3)...... 949,674 Tier 4 (x1)...... [[Page 25488]] Industry Member Complex 3............... Tier 1 (x1)...... Tier 2 (x1)...... 883,888 Tier 2 (x1)...... Industry Member Complex 4............... Tier 1 (x1)...... N/A....................... 808,472 Tier 2 (x1)...... Tier 4 (x1)...... Industry Member Complex 5............... Tier 2 (x1)...... Tier 2 (x1)...... 796,595 Tier 3 (x1)...... Tier 4 (x1)...... Tier 7 (x1)...... ---------------------------------------------------------------------------------------------------------------- (G) Billing Onset Under Section 11.1(c) of the CAT NMS Plan, to fund the development and implementation of the CAT, the Company shall time the imposition and collection of all fees on Participants and Industry Members in a manner reasonably related to the timing when the Company expects to incur such 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. C2 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 C2 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. C2 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, C2 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, [[Page 25489]] 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. 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 C2 proposes the Consolidated Audit Trail Funding Fees to implement the CAT Fees determined by the Operating Committee on C2'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)(i) 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 CBOE Rule 6.85 (Consolidated Audit Trail (CAT) Compliance Rule-- Definitions), which is incorporated by reference into Chapter 6, Section F of the C2 Rules. 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)(ii) 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)(iv) defines an ``Equity ATS'' as an ATS that executes transactions in NMS Stocks and/or OTC Equity Securities. Paragraph (A)(iii) 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)(vi) 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)(v) defines an ``Equity Execution Venue'' as an Execution Venue that trades NMS Stocks and/or OTC Equity Securities. (B) Fee Schedule C2 proposes to impose the CAT Fees applicable to its Industry Members through paragraph (B) of the proposed fee schedule. Paragraph (B(i) of the proposed fee schedule sets forth the CAT Fees applicable to Industry Members other than Equity ATSs. Specifically, paragraph (B)(i) 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)(ii) 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)(ii) 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)(ii) states that, each quarter, each Equity [[Page 25490]] 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 to trading restrictions related to Listed Options. ------------------------------------------------------------------------ Percentage of Equity Quarterly CAT Tier Execution fee Venues ------------------------------------------------------------------------ 1....................................... 25.00 $63,375 2....................................... 75.00 38,820 ------------------------------------------------------------------------ (C) Timing and Manner of Payment Section 11.4 of the CAT NMS Plan states that the Operating Committee shall establish a system for the collection of fees authorized under the CAT NMS Plan. The Operating Committee may include such collection responsibility as a function of the Plan Processor or another administrator. To implement the payment process to be adopted by the Operating Committee, paragraph (C)(i) 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)(i) 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. C2 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, C2 proposes to adopt paragraph (C)(ii) of the proposed fee schedule. Paragraph (C)(ii) 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 C2 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 C2 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 C2 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. C2 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). --------------------------------------------------------------------------- C2 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 C2 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, C2 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. --------------------------------------------------------------------------- C2 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, C2 believes that the total level of the CAT Fees is reasonable. In addition, C2 believes that the proposed CAT Fees are reasonably designed to allocate the total costs of the CAT equitably between and among the Participants and Industry Members, and are therefore not unfairly discriminatory. As discussed in detail above, the proposed tiered fees impose comparable fees on similarly situated CAT Reporters. For example, those with a larger impact on the CAT (measured via message traffic or market share) pay higher fees, whereas CAT Reporters with a smaller impact pay lower fees. Correspondingly, the tiered structure lessens the impact on smaller CAT Reporters by imposing smaller fees on those CAT Reporters with less market share or message traffic. In addition, the funding model takes into consideration affiliations between CAT Reporters, imposing comparable fees on such affiliated entities. Moreover, C2 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, [[Page 25491]] 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, C2 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 C2 rules not impose any burden on competition that is not necessary or appropriate. C2 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. C2 notes that the proposed rule change implements provisions of the CAT NMS Plan approved by the Commission, and is designed to assist C2 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, C2 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, C2 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, C2 does not believe that the fees will impose any burden on the competition between ATSs and exchanges. Accordingly, C2 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-C2-2017-017 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-C2-2017-017. 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-C2-2017-017, and should be submitted on or before June 22, 2017. 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. 2017-11362 Filed 5-31-17; 8:45 am] BILLING CODE 8011-01-P
![25474 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s CAT NMS, LLC (the ‘‘Company’’), of
COMMISSION Statement of the Purpose of, and which each Participant is a member, to
Statutory Basis for, the Proposed Rule operate the CAT.10 Under the CAT NMS
[Release No. 34–80786; File No. SR–C2–
Change Plan, the Operating Committee of the
Company (‘‘Operating Committee’’) has
2017–017] 1. Purpose
discretion to establish funding for the
Bats BYX Exchange, Inc., Bats BZX Company to operate the CAT, including
Self-Regulatory Organizations; C2
Exchange, Inc., Bats EDGA Exchange, establishing fees that the Participants
Options Exchange, Incorporated;
Inc., Bats EDGX Exchange, Inc., BOX will pay, and establishing fees for
Notice of Filing and Immediate Options Exchange LLC, C2 Options
Effectiveness of a Proposed Rule Industry Members that will be
Exchange, Incorporated, Chicago Board implemented by the Participants (‘‘CAT
Change To Establish the Fees for Options Exchange, Incorporated, Fees’’).11 The Participants are required
Industry Members Related to the Chicago Stock Exchange, Inc., Financial to file with the SEC under Section 19(b)
National Market System Plan Industry Regulatory Authority, Inc. of the Exchange Act any such CAT Fees
Governing the Consolidated Audit Trail (‘‘FINRA’’), Investors’ Exchange LLC, applicable to Industry Members that the
Miami International Securities Operating Committee approves.12
May 26, 2017.
Exchange, LLC, MIAX PEARL, LLC, Accordingly, C2 submits this fee filing
Pursuant to Section 19(b)(1) of the NASDAQ BX, Inc., Nasdaq GEMX, LLC, to propose the Consolidated Audit Trail
Securities Exchange Act of 1934 (the Nasdaq ISE, LLC, Nasdaq MRX, LLC,3 Funding Fees, which will require
‘‘Act’’),1 and Rule 19b–4 thereunder,2 NASDAQ PHLX LLC, The NASDAQ Industry Members that are C2 Trading
notice is hereby given that on May 16, Stock Market LLC, New York Stock Permit Holders to pay the CAT Fees
2017, C2 Options Exchange, Exchange LLC, NYSE MKT LLC, NYSE determined by the Operating
Incorporated (the ‘‘Exchange’’ or ‘‘C2’’) Arca, Inc. and NYSE National, Inc.4 Committee.
filed with the Securities and Exchange (collectively, the ‘‘Participants’’) filed
Commission (the ‘‘Commission’’) the with the Commission, pursuant to (1) Executive Summary
proposed rule change as described in Section 11A of the Exchange Act 5 and The following provides an executive
Items I, II, and III below, which Items Rule 608 of Regulation NMS summary of the CAT funding model
have been prepared by the Exchange. thereunder,6 the CAT NMS Plan.7 The approved by the Operating Committee,
The Commission is publishing this Participants filed the Plan to comply as well as Industry Members’ rights and
notice to solicit comments on the with Rule 613 of Regulation NMS under obligations related to the payment of
proposed rule change from interested the Exchange Act. The Plan was CAT Fees calculated pursuant to the
persons. published for comment in the Federal CAT funding model. A detailed
Register on May 17, 2016,8 and description of the CAT funding model
I. Self-Regulatory Organization’s approved by the Commission, as and the CAT Fees follows this executive
Statement of the Terms of Substance of modified, on November 15, 2016.9 The summary.
the Proposed Rule Change Plan is designed to create, implement
and maintain a consolidated audit trail (A) CAT Funding Model
The Exchange proposes to amend its (‘‘CAT’’) that would capture customer • CAT Costs. The CAT funding model
Fees Schedule to establish the fees for and order event information for orders is designed to establish CAT-specific
Industry Members related to the in NMS Securities and OTC Equity fees to collectively recover the costs of
National Market System Plan Governing Securities, across all markets, from the building and operating the CAT from all
the Consolidated Audit Trail. The text time of order inception through routing, CAT Reporters, including Industry
of the proposed rule change is available cancellation, modification, or execution Members and Participants. The overall
on the Exchange’s Web site (http:// in a single consolidated data source. CAT costs for the calculation of the CAT
www.c2exchange.com/Legal/), at the The Plan accomplishes this by creating Fees in this fee filing are comprised of
Exchange’s Office of the Secretary, and Plan Processor CAT costs and non-Plan
at the Commission’s Public Reference 3 ISE Gemini, LLC, ISE Mercury, LLC and
Processor CAT costs incurred, and
International Securities Exchange, LLC have been estimated to be incurred, from
Room. renamed Nasdaq GEMX, LLC, Nasdaq MRX, LLC,
and Nasdaq ISE, LLC, respectively. See Securities November 21, 2016 through November
II. Self-Regulatory Organization’s Exchange Act Rel. No. 80248 (Mar. 15, 2017), 82 FR 21, 2017. (See Section 3(a)(2)(E) [sic]
Statement of the Purpose of, and 14547 (Mar. 21, 2017); Securities Exchange Act Rel. below 13)
Statutory Basis for, the Proposed Rule No. 80326 (Mar. 29, 2017), 82 FR 16460 (Apr. 4,
2017); and Securities Exchange Act Rel. No. 80325
• Bifurcated Funding Model. The
Change (Mar. 29, 2017), 82 FR 16445 (Apr. 4, 2017). CAT NMS Plan requires a bifurcated
4 National Stock Exchange, Inc. has been renamed funding model, where costs associated
In its filing with the Commission, the NYSE National, Inc. See Securities Exchange Act with building and operating the CAT
Exchange included statements Rel. No. 79902 (Jan. 30, 2017), 82 FR 9258 (Feb. 3, would be borne by (1) Participants and
concerning the purpose of and basis for 2017).
5 15 U.S.C. 78k–1. Industry Members that are Execution
the proposed rule change and discussed 6 17 CFR 242.608. Venues for Eligible Securities through
any comments it received on the 7 See Letter from the Participants to Brent J. fixed tier fees based on market share,
proposed rule change. The text of these Fields, Secretary, Commission, dated September 30, and (2) Industry Members (other than
statements may be examined at the 2014; and Letter from Participants to Brent J. Fields, alternative trading systems (‘‘ATSs’’)
places specified in Item IV below. The Secretary, Commission, dated February 27, 2015.
mstockstill on DSK30JT082PROD with NOTICES
On December 24, 2015, the Participants submitted
Exchange has prepared summaries, set an amendment to the CAT NMS Plan. See Letter
10 The Plan also serves as the limited liability
forth in sections A, B, and C below, of from Participants to Brent J. Fields, Secretary, company agreement for the Company.
11 Section 11.1(b) of the CAT NMS Plan.
the most significant aspects of such Commission, dated December 23, 2015.
8 Securities Exchange Act Rel. No. 77724 (Apr. 12 Id.
statements.
27, 2016), 81 FR 30614 (May 17, 2016). 13 The Commission notes that references to
9 Securities Exchange Act Rel. No. 79318 (Nov. Sections 3(a)(2) and 3(a)(3) in this Executive
1 15 U.S.C. 78s(b)(1). 15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘Approval Summary should be instead to Sections II.A.1.(2)
2 17 CFR 240.19b–4. Order’’). and II.A.1.(3), respectively.
VerDate Sep<11>2014 18:32 May 31, 2017 Jkt 241001 PO 00000 Frm 00251 Fmt 4703 Sfmt 4703 E:\FR\FM\01JNN1.SGM 01JNN1](https://thefederalregister.org/doc/82_FR_25578/page/1.svg)
![Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices 25475
that execute transactions in Eligible to Options Execution Venues. (See market share, and (2) Industry Members
Securities (‘‘Execution Venue ATSs’’)) Section 3(a)(2)(D) [sic] below) (other than Execution Venue ATSs)
through fixed tier fees based on message • Comparability of Fees. The CAT through fixed tier fees based on message
traffic for Eligible Securities. (See funding model requires that the CAT traffic. In its order approving the CAT
Section 3(a)(2) [sic] below) Fees charged to the CAT Reporters with NMS Plan, the Commission determined
• Industry Member Fees. Each the most CAT-related activity (measured that the proposed funding model was
Industry Member (other than Execution by market share and/or message traffic, ‘‘reasonable’’ 14 and ‘‘reflects a
Venue ATSs) will be placed into one of as applicable) are generally comparable reasonable exercise of the Participants’
nine tiers of fixed fees, based on (where, for these comparability funding authority to recover the
‘‘message traffic’’ in Eligible Securities purposes, the tiered fee structure takes Participants’ costs related to the
for a defined period (as discussed into consideration affiliations between CAT.’’ 15
below). Prior to the start of CAT or among CAT Reporters, whether More specifically, the Commission
reporting, ‘‘message traffic’’ will be Execution Venues and/or Industry stated in approving the CAT NMS Plan
comprised of historical equity and Members). (See Section 3(a)(2)(F) [sic] that ‘‘[t]he Commission believes that the
equity options orders, cancels and below) proposed funding model is reasonably
quotes provided by each exchange and (B) CAT Fees for Industry Members designed to allocate the costs of the CAT
FINRA over the previous three months. between the Participants and Industry
After an Industry Member begins • Fee Schedule. The quarterly CAT Members.’’ 16 The Commission further
reporting to the CAT, ‘‘message traffic’’ Fees for each tier for Industry Members noted the following:
will be calculated based on the Industry are set forth in the two fee schedules in
The Commission believes that the
Member’s Reportable Events reported to the Consolidated Audit Trail Funding proposed funding model reflects a reasonable
the CAT. Industry Members with lower Fees, one for Equity ATSs and one for exercise of the Participants’ funding
levels of message traffic will pay a lower Industry Members other than Equity authority to recover the Participants’ costs
fee and Industry Members with higher ATSs. (See Section 3(a)(3)(B) [sic] related to the CAT. The CAT is a regulatory
levels of message traffic will pay a below) facility jointly owned by the Participants and
• Quarterly Invoices. Industry . . . the Exchange Act specifically permits
higher fee. (See Section 3(a)(2)(B) [sic] the Participants to charge their members fees
Members will be billed quarterly for
below) to fund their self-regulatory obligations. The
CAT Fees, with the invoices payable
• Execution Venue Fees. Each Equity within 30 days. The quarterly invoices Commission further believes that the
Execution Venue will be placed in one proposed funding model is designed to
will identify within which tier the impose fees reasonably related to the
of two tiers of fixed fees based on Industry Member falls. (See Section
market share, and each Options Participants’ self-regulatory obligations
3(a)(3)(C) [sic] below) because the fees would be directly associated
Execution Venue will be placed in one • Centralized Payment. Each Industry with the costs of establishing and
of two tiers of fixed fees based on Member will receive from the Company maintaining the CAT, and not unrelated SRO
market share. Equity Execution Venue one invoice for its applicable CAT Fees, services.17
market share will be determined by not separate invoices from each Accordingly, the funding model imposes fees
calculating each Equity Execution Participant of which it is a member. The on both Participants and Industry Members.
Venue’s proportion of the total volume Industry Members will pay its CAT Fees In addition, as discussed in Appendix
of NMS Stock and OTC Equity shares to the Company via the centralized C of the CAT NMS Plan, the Operating
reported by all Equity Execution Venues system for the collection of CAT Fees Committee considered the advantages
during the relevant time period. established by the Operating Committee. and disadvantages of a variety of
Similarly, market share for Options (See Section 3(a)(3)(C) [sic] below) alternative funding and cost allocation
Execution Venues will be determined by • Billing Commencement. Industry models before selecting the proposed
calculating each Options Execution Members will begin to receive invoices model.18 After analyzing the various
Venue’s proportion of the total volume for CAT Fees as promptly as possible alternatives, the Operating Committee
of Listed Options contracts reported by following the establishment of a billing determined that the proposed tiered,
all Options Execution Venues during mechanism. C2 will issue a Regulatory fixed fee funding model provides a
the relevant time period. Equity Circular to Trading Permit Holders variety of advantages in comparison to
Execution Venues with a larger market when the billing mechanism is the alternatives. First, the fixed fee
share will pay a larger CAT Fee than established, specifying the date when model, as opposed to a variable fee
Equity Execution Venues with a smaller such invoicing of Industry Members model, provides transparency, ease of
market share. Similarly, Options will commence. (See Section 3(a)(2)(G) calculation, ease of billing and other
Execution Venues with a larger market [sic] below) administrative functions, and
share will pay a larger CAT Fee than
(2) Description of the CAT Funding predictability of a fixed fee. Such factors
Options Execution Venues with a
Model are crucial to estimating a reliable
smaller market share. (See Section
revenue stream for the Company and for
3(a)(2)(C) [sic] below) Article XI of the CAT NMS Plan permitting CAT Reporters to reasonably
• Cost Allocation. For the reasons requires the Operating Committee to predict their payment obligations for
discussed below, in designing the approve the operating budget, including budgeting purposes.19 Additionally, a
model, the Operating Committee projected costs of developing and
determined that 75 percent of total costs operating the CAT for the upcoming 14 Approval Order at 84796.
recovered would be allocated to year. As set forth in Article XI of the
mstockstill on DSK30JT082PROD with NOTICES
15 Id. at 84794.
Industry Members (other than Execution CAT NMS Plan, the CAT NMS Plan 16 Id. at 84795.
Venue ATSs) and 25 percent would be requires a bifurcated funding model, 17 Id. at 84794.
allocated to Execution Venues. In where costs associated with building 18 Section B.7, Appendix C of the CAT NMS Plan,
addition, the Operating Committee and operating the Central Repository Approval Order at 85006.
19 In choosing a tiered fee structure, the self-
determined to allocate 75 percent of would be borne by (1) Participants and regulatory organizations (‘‘SROs’’) concluded that
Execution Venue costs recovered to Industry Members that are Execution the variety of benefits offered by a tiered fee
Equity Execution Venues and 25 percent Venues through fixed tier fees based on Continued
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![25476 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
strictly variable or metered funding will be in the top tier, and therefore will a large volume of quotes would likely be
model based on message volume would be charged a higher fee. Execution categorized in one of the upper tiers,
be far more likely to affect market Venues with a lower market share will and would not be assessed a fee for this
behavior and place an inappropriate be in the lower tier and will be assessed traffic directly as they would under a
burden on competition. Moreover, as a smaller fee for the CAT.24 more directly metered model. In
the SEC noted in approving the CAT The Commission also noted in contrast, strictly variable or metered
NMS Plan, ‘‘[t]he Participants also have approving the CAT NMS Plan that funding models based on message
offered a reasonable basis for ‘‘[t]he Participants have offered a volume were far more likely to affect
establishing a funding model based on credible justification for using different market behavior. In approving the CAT
broad tiers, in that it be may be easier criteria to charge Execution Venues NMS Plan, the SEC stated that ‘‘[t]he
to implement.’’ 20 (market share) and Industry Members Participants also offered a reasonable
In addition, multiple reviews of (message traffic)’’ 25 in the CAT funding basis for establishing a funding model
current broker-dealer order and trading model. While there are multiple factors based on broad tiers, in that it may be
data submitted under existing reporting that contribute to the cost of building, . . . less likely to have an incremental
requirements showed a wide range in maintaining and using the CAT, deterrent effect on liquidity
activity among broker-dealers, with a processing and storage of incoming provision.’’ 31
number of broker-dealers submitting message traffic is one of the most The CAT NMS Plan is structured to
fewer than 1,000 orders per month and significant cost drivers for the CAT.26 avoid potential conflicts raised by the
other broker-dealers submitting millions Thus, the CAT NMS Plan provides that Operating Committee determining fees
and even billions of orders in the same the fees payable by Industry Members applicable to its own members—the
period. Accordingly, the CAT NMS Plan (other than Execution Venue ATSs) will Participants. First, the Company will be
includes a tiered approach to fees. The be based on the message traffic operated on a ‘‘break-even’’ basis, with
tiered approach helps ensure that fees generated by such Industry Member.27 fees imposed to cover costs and an
are equitably allocated among similarly The CAT NMS Plan provides that the appropriate reserve. Any surpluses will
situated CAT Reporters and furthers the Operating Committee will use different be treated as an operational reserve to
goal of lessening the impact on smaller criteria to establish fees for Execution offset future fees and will not be
firms.21 The self-regulatory Venues and non-Execution Venues due distributed to the Participants as
organizations considered several to the fundamental differences between profits.32 To ensure that the
approaches to developing a tiered the two types of entities. In particular, Participants’ operation of the CAT will
model, including defining fee tiers the CAT NMS Plan provides that fees not contribute to the funding of their
based on such factors as size of firm, charged to CAT Reporters that are other operations, Section 11.1(c) of the
message traffic or trading dollar volume. Execution Venues will be based on the CAT NMS Plan specifically states that
After analyzing the alternatives, it was level of market share and that costs ‘‘[a]ny surplus of the Company’s
concluded that the tiering should be charged to Industry Members (other revenues over its expenses shall be
based on the relative impact of CAT than Execution Venue ATSs) will be treated as an operational reserve to
Reporters on the CAT System. based upon message traffic.28 Because offset future fees.’’ In addition, as set
Accordingly, the CAT NMS Plan most Participant message traffic consists forth in Article VIII of the CAT NMS
contemplates that costs will be allocated of quotations, and Participants usually Plan, the Company ‘‘intends to operate
across the CAT Reporters on a tiered disseminate quotations in all in a manner such that it qualifies as a
basis to allocate costs to those CAT instruments they trade, regardless of ‘business league’ within the meaning of
Reporters that contribute more to the execution volume, Execution Venues Section 501(c)(6) of the [Internal
costs of creating, implementing and that are Participants generally Revenue] Code.’’ To qualify as a
maintaining the CAT.22 The fees to be disseminate similar amounts of message business league, an organization must
assessed at each tier are calculated so as traffic. Accordingly, basing fees for ‘‘not [be] organized for profit and no
to recoup a proportion of costs Execution Venues on message traffic part of the net earnings of [the
appropriate to the message traffic or would not provide the same degree of organization can] inure[] to the benefit
market share (as applicable) from CAT differentiation among Execution Venues of any private shareholder or
Reporters in each tier. Therefore, that it does among Industry Members individual.’’ 33 As the SEC stated when
Industry Members generating the most (other than Execution Venue ATSs). In approving the CAT NMS Plan, ‘‘the
message traffic will be in the higher contrast, execution volume more Commission believes that the
tiers, and therefore be charged a higher accurately delineates the different levels Company’s application for Section
fee. Industry Members with lower levels of trading activity of Execution 501(c)(6) business league status
of message traffic will be in lower tiers Venues.29 addresses issues raised by commenters
and will be assessed a smaller fee for the The CAT NMS Plan’s funding model about the Plan’s proposed allocation of
CAT.23 Correspondingly, Execution also is structured to avoid a ‘‘reduction profit and loss by mitigating concerns
Venues with the highest market share in market quality.’’ 30 The tiered, fixed that the Company’s earnings could be
fee funding model is designed to limit used to benefit individual
structure, discussed above, outweighed the fact that the disincentives to providing liquidity Participants.’’ 34
Industry Members in any particular tier would pay to the market. For example, the Finally, by adopting a CAT-specific
different rates per message traffic order event (e.g., Participants expect that a firm that had
an Industry Member with the largest amount of fee, the Participants will be fully
message traffic in one tier would pay a smaller transparent regarding the costs of the
24 Id.
mstockstill on DSK30JT082PROD with NOTICES
amount per order event than an Industry Member CAT. Charging a general regulatory fee,
25 Id.
at 84796.
in the same tier with the least amount of message
traffic). Such variation is the natural result of a 26 SectionB.7, Appendix C of the CAT NMS Plan,
which would be used to cover CAT
tiered fee structure. Approval Order at 85005. costs as well as other regulatory costs,
20 Approval Order at 84796. 27 Section 11.3(b) of the CAT NMS Plan.
21 Section B.7, Appendix C of the CAT NMS Plan, 28 Section 11.2(c) of the CAT NMS Plan. 31 Approval Order at 84796.
Approval Order at 85006. 29 Section B.7, Appendix C of the CAT NMS Plan, 32 Id.at 84792.
22 Approval Order at 85005. Approval Order at 85005. 33 26 U.S.C. 501(c)(6).
23 Id. 30 Section 11.2(e) of the CAT NMS Plan. 34 Approval Order at 84793.
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Percentage
Percentage Percentage
of Industry
Industry Member tier of Industry of total
Member
Members recovery
recovery
Tier 1 ............................................................................................................................................ 0.500 8.50 6.38
Tier 2 ............................................................................................................................................ 2.500 35.00 26.25
Tier 3 ............................................................................................................................................ 2.125 21.25 15.94
Tier 4 ............................................................................................................................................ 4.625 15.75 11.81
Tier 5 ............................................................................................................................................ 3.625 7.75 5.81
Tier 6 ............................................................................................................................................ 4.000 5.25 3.94
Tier 7 ............................................................................................................................................ 17.500 4.50 3.38
Tier 8 ............................................................................................................................................ 20.125 1.50 1.13
Tier 9 ............................................................................................................................................ 45.000 0.50 0.38
Total ...................................................................................................................................... 100 100 75
For the purposes of creating these of the total number of equity and equity (C) Execution Venue Tiering
tiers based on message traffic, the option cancels received and originated Under Section 11.3(a) of the CAT
Operating Committee determined to by a member of an exchange or FINRA NMS Plan, the Operating Committee is
define the term ‘‘message traffic’’ over a three-month period, excluding required to establish fixed fees payable
separately for the period before the order modifications (e.g., order updates, by Execution Venues. Section 1.1 of the
commencement of CAT reporting and order splits, partial cancels). CAT NMS Plan defines an Execution
for the period after the start of CAT Furthermore, prior to the start of CAT Venue as ‘‘a Participant or an alternative
reporting. The different definition for reporting, quotes would be comprised of trading system (‘‘ATS’’) (as defined in
message traffic is necessary as there will information readily available to the Rule 300 of Regulation ATS) that
be no Reportable Events as defined in exchanges and FINRA, such as the total operates pursuant to Rule 301 of
the Plan, prior to the commencement of number of historical equity and equity Regulation ATS (excluding any such
CAT reporting. Accordingly, prior to the options quotes received and originated ATS that does not execute orders).’’ 38
start of CAT reporting, ‘‘message traffic’’ by a member of an exchange or FINRA The Participants determined that
will be comprised of historical equity over the prior three-month period. ATSs should be included within the
and equity options orders, cancels and After an Industry Member begins definition of Execution Venue. Given
quotes provided by each exchange and reporting to the CAT, ‘‘message traffic’’ the similarity between the activity of
FINRA over the previous three will be calculated based on the Industry exchanges and ATSs, both of which
months.35 Prior to the start of CAT Member’s Reportable Events reported to meet the definition of an ‘‘exchange’’ as
reporting, orders would be comprised of the CAT as will be defined in the set forth in the Exchange Act and the
the total number of equity and equity Technical Specifications.37 fact that the similar trading models
options orders received and originated would have similar anticipated burdens
by a member of an exchange or FINRA The Operating Committee has on the CAT, the Participants determined
over the previous three-month period, determined to calculate fee tiers every that ATSs should be treated in the same
including principal orders, cancel/ three months, on a calendar quarter manner as the exchanges for the
replace orders, market maker orders basis, based on message traffic from the purposes of determining the level of fees
originated by a member of an exchange, prior three months. Based on its associated with the CAT.39
and reserve (iceberg) orders as well as analysis of historical data, the Operating Given the differences between
order routes and executions originated Committee believes that calculating tiers Execution Venues that trade NMS
by a member of FINRA, and excluding based on three months of data will Stocks and/or OTC Equity Securities
order rejects and implied orders.36 In provide the best balance between and Execution Venues that trade Listed
addition, prior to the start of CAT reflecting changes in activity by Options, Section 11.3(a) addresses
reporting, cancels would be comprised Industry Members while still providing Execution Venues that trade NMS
predictability in the tiering for Industry Stocks and/or OTC Equity Securities
35 The SEC approved exemptive relief permitting Members. Because fee tiers will be separately from Execution Venues that
Options Market Maker quotes to be reported to the calculated based on message traffic from trade Listed Options. Equity and
Central Repository by the relevant Options the prior three months, the Operating Options Execution Venues are treated
Exchange in lieu of requiring that such reporting be
done by both the Options Exchange and the Options
Committee will begin calculating separately for two reasons. First, the
Market Maker, as required by Rule 613 of message traffic based on an Industry differing quoting behavior of Equity and
Regulation NMS. See Securities Exchange Act Member’s Reportable Events reported to Options Execution Venues makes
Release No. 77265 (Mar. 1, 2017 [sic], 81 FR 11856 the CAT once the Industry Member has comparison of activity between
(Mar. 7, 2016). This exemption applies to Options
Market Maker quotes for CAT reporting purposes
been reporting to the CAT for three Execution Venues difficult. Second,
only. Therefore, notwithstanding the reporting months. Prior to that, fee tiers will be Execution Venue tiers are calculated
exemption provided for Options Market Maker calculated as discussed above with based on market share of share volume,
quotes, Options Market Maker quotes will be regard to the period prior to CAT and it is therefore difficult to compare
mstockstill on DSK30JT082PROD with NOTICES
included in the calculation of total message traffic
for Options Market Makers for purposes of tiering
reporting. market share between asset classes (i.e.,
under the CAT funding model both prior to CAT
reporting and once CAT reporting commences 37 If an Industry Member (other than an Execution 38 Although FINRA does not operate an execution
36 Consequently, firms that do not have ‘‘message Venue ATS) has no orders, cancels or quotes prior venue, because it is a Participant, it is considered
traffic’’ reported to an exchange or OATS before to the commencement of CAT Reporting, or no an ‘‘Execution Venue’’ under the Plan for purposes
they are reporting to the CAT would not be subject Reportable Events after CAT reporting commences, of determining fees.
to a fee until they begin to report information to then the Industry Member would not have a CAT 39 Section B.7, Appendix C of the CAT NMS Plan,
CAT. fee obligation. Approval Order at 85005.
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![25480 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
equity shares versus options contracts). fixed fees, based on the Execution In doing so, the Participants considered
Discussed below is how the funding Venue’s NMS Stocks and OTC Equity that, as previously noted, Execution
model treats the two types of Execution Securities market share. In choosing two Venues in many cases have similar
Venues. tiers, the Operating Committee levels of message traffic due to quoting
performed an analysis similar to that activity, and determined that it was
(I) NMS Stocks and OTC Equity
discussed above with regard to the non- simpler and more appropriate to have
Securities
Execution Venue Industry Members to fewer, rather than more, Execution
Section 11.3(a)(i) of the CAT NMS determine the number of tiers for Equity Venue tiers to distinguish between
Plan states that each Execution Venue Execution Venues. The Operating Execution Venues.
that (i) executes transactions or, (ii) in Committee determined to establish two
the case of a national securities The percentage of costs recovered by
tiers for Equity Execution Venues, rather each Equity Execution Venue tier will
association, has trades reported by its than a larger number of tiers as
members to its trade reporting facility or be determined by predefined percentage
established for non-Execution Venue allocations (the ‘‘Equity Execution
facilities for reporting transactions Industry Members, because the two tiers
effected otherwise than on an exchange, Venue Recovery Allocation’’). In
were sufficient to distinguish between
in NMS Stocks or OTC Equity Securities determining the fixed percentage
the smaller number of Equity Execution
will pay a fixed fee depending on the allocation of costs recovered for each
Venues based on market share.
market share of that Execution Venue in tier, the Operating Committee
Furthermore, the incorporation of
NMS Stocks and OTC Equity Securities, considered the impact of CAT Reporter
additional Equity Execution Venue tiers
with the Operating Committee market share activity on the CAT
would result in significantly higher fees
establishing at least two and not more System as well as the distribution of
for Tier 1 Equity Execution Venues and
than five tiers of fixed fees, based on an total market volume across Equity
diminish comparability between
Execution Venue’s NMS Stocks and Execution Venues while seeking to
Execution Venues and Industry
OTC Equity Securities market share. For maintain comparable fees among the
Members.
these purposes, market share for Each Equity Execution Venue will be largest CAT Reporters. Accordingly,
Execution Venues that execute ranked by market share and tiered by following the determination of the
transactions will be calculated by share predefined Execution Venue percentage of Execution Venues in each
volume, and market share for a national percentages, (the ‘‘Equity Execution tier, the Operating Committee identified
securities association that has trades Venue Percentages’’). In determining the the percentage of total market volume
reported by its members to its trade fixed percentage of Equity Execution for each tier based on the historical
reporting facility or facilities for Venues in each tier, the Operating market share upon which Execution
reporting transactions effected Committee looked at historical market Venues had been initially ranked.
otherwise than on an exchange in NMS share of share volume for execution Taking this into account along with the
Stocks or OTC Equity Securities will be venues. Equities Execution Venue resulting percentage of total recovery,
calculated based on share volume of market share of share volume were the percentage allocation of costs
trades reported, provided, however, that sourced from market statistics made recovered for each tier were assigned,
the share volume reported to such publicly-available by Bats Global allocating higher percentages of
national securities association by an Markets, Inc. (‘‘Bats’’). ATS market recovery to the tier with a higher level
Execution Venue shall not be included share of share volume was sourced from of market share while avoiding any
in the calculation of such national market statistics made publicly- inappropriate burden on competition.
security association’s market share. available by FINRA. FINRA trading [sic] Furthermore, due to the similar levels of
In accordance with Section 11.3(a)(i) reporting facility (‘‘TRF’’) market share impact on the CAT System across
of the CAT NMS Plan, the Operating of share volume was sourced from Execution Venues, there is less variation
Committee approved a tiered fee market statistics made publicly in CAT Fees between the highest and
structure for Equity Execution Venues available by Bats. As indicated by lowest of tiers for Execution Venues.
and Option Execution Venues. In FINRA, ATSs accounted for 37.80% of Furthermore, by using percentages of
determining the Equity Execution the share volume across the TRFs Equity Execution Venues and costs
Venue Tiers, the Operating Committee during the recent tiering period. A recovered per tier, the Operating
considered the funding principles set 37.80/62.20 split was applied to the Committee sought to include stability
forth in Section 11.2 of the CAT NMS ATS and non-ATS breakdown of FINRA and elasticity within the funding model,
Plan, seeking to create funding tiers that market share, with FINRA tiered based allowing the funding model to respond
take into account the relative impact on only on the non-ATS portion of its TRF to changes in either the total number of
system resources of different Equity market share of share volume. Equity Execution Venues or changes in
Execution Venues, and that establish Based on this, the Operating market share.
comparable fees among the CAT Committee considered the distribution Based on this analysis, the Operating
Reporters with the most Reportable of Execution Venues, and grouped Committee approved the following
Events. Each Equity Execution Venue together Execution Venues with similar Equity Execution Venue Percentages
will be placed into one of two tiers of levels of market share of share volume. and Recovery Allocations:
Percentage Percentage Percentage
of Equity of Execution
Equity Execution Venue tier of total
Execution Venue
mstockstill on DSK30JT082PROD with NOTICES
recovery
Venues recovery
Tier 1 ............................................................................................................................................ 25.00 26.00 6.50
Tier 2 ............................................................................................................................................ 75.00 49.00 12.25
Total ...................................................................................................................................... 100 75 18.75
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![Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices 25481
The following table exhibits the For these purposes, market share will be Venue Percentages’’). To determine the
relative separation of market share of calculated by contract volume. fixed percentage of Options Execution
share volume between Tier 1 and Tier In accordance with Section 11.3(a)(ii) Venues in each tier, the Operating
2 Equity Execution Venues. In of the CAT NMS Plan, the Operating Committee analyzed the historical and
reviewing the table, note that while this Committee approved a tiered fee publicly available market share of
division was referenced as a data point structure for Options Execution Venues. Options Execution Venues to group
to help differentiate between Equity In determining the tiers, the Operating Options Execution Venues with similar
Execution Venue tiers, the proposed Committee considered the funding market shares across the tiers. Options
funding model is directly driven not by principles set forth in Section 11.2 of Execution Venue market share of share
market share thresholds, but rather by the CAT NMS Plan, seeking to create volume were sourced from market
fixed percentages of Equity Execution funding tiers that take into account the statistics made publicly-available by
Venues across tiers to account for relative impact on system resources of Bats. The process for developing the
fluctuating levels of market share across different Options Execution Venues, Options Execution Venue Percentages
time. Actual market share in any tier and that establish comparable fees was the same as discussed above with
will vary based on the actual market among the CAT Reporters with the most regard to Equity Execution Venues.
activity in a given measurement period, Reportable Events. Each Options
The percentage of costs recovered by
as well as the number of Equity Execution Venue will be placed into one
each Options Execution Venue tier will
Execution Venues included in the of two tiers of fixed fees, based on the
be determined by predefined percentage
measurement period. The Equity Execution Venue’s Listed Options
allocations (the ‘‘Options Execution
Execution Venue Percentages and market share. In choosing two tiers, the
Operating Committee performed an Venue Recovery Allocation’’). In
Equity Execution Venue Recovery
analysis similar to that discussed above determining the fixed percentage
Allocation for each tier will remain
with regard to Industry Members (other allocation of costs recovered for each
fixed with each Equity Execution Venue
than Execution Venue ATSs) to tier, the Operating Committee
tier to be reassigned periodically, as
determine the number of tiers for considered the impact of CAT Reporter
described below in Section 3(a)(1)(I)
Options Execution Venues. The market share activity on the CAT
[sic].
Operating Committee determined to System as well as the distribution of
Equity establish two tiers for Options total market volume across Options
market Execution Venues, rather than a larger Execution Venues while seeking to
Equity
Execution share of
number of tiers as established for maintain comparable fees among the
share largest CAT Reporters. Furthermore, by
Venue tier Industry Members (other than Execution
volume
(%) Venue ATSs), because the two tiers using percentages of Options Execution
were sufficient to distinguish between Venues and costs recovered per tier, the
Tier 1 ............................. ≥1 the smaller number of Options Operating Committee sought to include
Tier 2 ............................. <1
Execution Venues based on market stability and elasticity within the
share. Furthermore, due to the smaller funding model, allowing the funding
(II) Listed Options number of Options Execution Venues, model to respond to changes in either
Section 11.3(a)(ii) of the CAT NMS the incorporation of additional Options the total number of Options Execution
Plan states that each Execution Venue Execution Venue tiers would result in Venues or changes in market share. The
that executes transactions in Listed significantly higher fees for Tier 1 process for developing the Options
Options will pay a fixed fee depending Options Execution Venues and reduce Execution Venue Recovery Allocation
on the Listed Options market share of comparability between Execution was the same as discussed above with
that Execution Venue, with the Venues and Industry Members. regard to Equity Execution Venues.
Operating Committee establishing at Each Options Execution Venue will Based on this analysis, the Operating
least two and no more than five tiers of be ranked by market share and tiered by Committee approved the following
fixed fees, based on an Execution predefined Execution Venue Options Execution Venue Percentages
Venue’s Listed Options market share. percentages, (the ‘‘Options Execution and Recovery Allocations:
Percentage Percentage Percentage
of Options of Execution of total
Options Execution Venue tier Execution Venue recovery
Venues recovery (%)
(%) (%)
Tier 1 ............................................................................................................................................ 75.00 20.00 5.00
Tier 2 ............................................................................................................................................ 25.00 5.00 1.25
Total ...................................................................................................................................... 100 25 6.25
The following table exhibits the market share thresholds, but rather by measurement period. The Options
relative separation of market share of fixed percentages of Options Execution Execution Venue Percentages and
share volume between Tier 1 and Tier
mstockstill on DSK30JT082PROD with NOTICES
Venues across tiers to account for Equity Execution Venue Recovery
2 Options Execution Venues. In fluctuating levels of market share across Allocation for each tier will remain
reviewing the table, note that while this time. Actual market share in any tier fixed with each Options Execution
division was referenced as a data point will vary based on the actual market Venue tier to be reassigned periodically,
to help differentiate between Options activity in a given measurement period, as described below in Section 3(a)(1)(I)
Execution Venue tiers, the proposed as well as the number of Options [sic].
funding model is directly driven, not by Execution Venues included in the
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INDUSTRY MEMBER COMPLEXES—Continued
Total fees
Listing of Industry Member
Industry Member complex Listing of ATS tiers by IM
tiers complex
Industry Member Complex 3 .................................................... • Tier 1 (x1) ............................ • Tier 2 (x1) ............................ 883,888
• Tier 2 (x1) ............................
Industry Member Complex 4 .................................................... • Tier 1 (x1) ............................ N/A .......................................... 808,472
• Tier 2 (x1) ............................
• Tier 4 (x1) ............................
Industry Member Complex 5 .................................................... • Tier 2 (x1) ............................ • Tier 2 (x1) ............................ 796,595
• Tier 3 (x1) ............................
• Tier 4 (x1) ............................
• Tier 7 (x1) ............................
(G) Billing Onset adequate funding of the Company.’’ the relevant tri-monthly date. C2 notes
Under Section 11.1(c) of the CAT With such reviews, the Operating that any movement of CAT Reporters
NMS Plan, to fund the development and Committee will review the distribution between tiers will not change the
implementation of the CAT, the of Industry Members and Execution criteria for each tier or the fee amount
Company shall time the imposition and Venues across tiers, and make any corresponding to each tier.
collection of all fees on Participants and updates to the percentage of CAT In performing the tri-monthly
Industry Members in a manner Reporters allocated to each tier as may reassignments, C2 notes that the
reasonably related to the timing when be necessary. In addition, the reviews percentage of CAT Reporters in each
the Company expects to incur such will evaluate the estimated ongoing assigned tier is relative. Therefore, a
development and implementation costs. CAT costs and the level of the operating CAT Reporter’s assigned tier will
The Company is currently incurring reserve. To the extent that the total CAT depend, not only on its own message
such development and implementation costs decrease, the fees would be traffic or market share, but it also will
costs and will continue to do so prior adjusted downward, and, to the extent depend on the message traffic/market
to the commencement of CAT reporting that the total CAT costs increase, the share across all CAT Reporters. For
and thereafter. For example, the Plan fees would be adjusted upward.48 example, the percentage of Industry
Processor has required up-front Furthermore, any surplus of the Members (other than Execution Venue
payments to begin building the CAT. In Company’s revenues over its expenses is ATSs) in each tier is relative such that
addition, the Company continues to to be included within the operational such Industry Member’s assigned tier
incur consultant and legal expenses on reserve to offset future fees. The will depend on message traffic
an on-going basis to implement the limitations on more frequent changes to generated across all CAT Reporters as
CAT. Accordingly, the Operating the fee, however, are intended to well as the total number of CAT
Committee determined that all CAT provide budgeting certainty for the CAT Reporters. The Operating Committee
Reporters, including both Industry Reporters and the Company.49 To the will inform CAT Reporters of their
Members and Execution Venues extent that the Operating Committee assigned tier every three months
(including Participants), would begin to approves changes to the number of tiers following the periodic tiering process,
be invoiced as promptly as possible in the funding model or the fees as the funding model will compare an
following the establishment of a billing assigned to each tier, then C2 will file individual CAT Reporter’s activity to
mechanism. C2 will issue a Regulatory such changes with the SEC pursuant to that of other CAT Reporters in the
Circular to Trading Permit Holders Section 19(b) of the Exchange Act, and marketplace.
when the billing mechanism is any such changes will become effective The following demonstrates a tier
established, specifying the date when in accordance with the requirements of reassignment. In accordance with the
such invoicing of Industry Members Section 19(b). funding model, the top 75% of Options
will commence. (I) Initial and Periodic Tier Execution Venues in market share are
Reassignments categorized as Tier 1 while the bottom
(H) Changes to Fee Levels and Tiers 25% of Options Execution Venues in
Section 11.3(d) of the CAT NMS Plan The Operating Committee has market share are categorized as Tier 2.
states that ‘‘[t]he Operating Committee determined to calculate fee tiers every In the sample scenario below, Options
shall review such fee schedule on at three months based on market share or Execution Venue L is initially
least an annual basis and shall make any message traffic, as applicable, from the categorized as a Tier 2 Options
changes to such fee schedule that it prior three months. For the initial tier Execution Venue in Period A due to its
deems appropriate. The Operating assignments, the Company will market share. When market share is
Committee is authorized to review such calculate the relevant tier for each CAT recalculated for Period B, the market
fee schedule on a more regular basis, but Reporter using the three months of data share of Execution Venue L increases,
shall not make any changes on more prior to the commencement date. As and it is therefore subsequently
than a semi-annual basis unless, with the initial tier assignment, for the reranked and reassigned to Tier 1 in
mstockstill on DSK30JT082PROD with NOTICES
pursuant to a Supermajority Vote, the tri-monthly reassignments, the Period B. Correspondingly, Options
Operating Committee concludes that Company will calculate the relevant tier Execution Venue K, initially a Tier 1
such change is necessary for the using the three months of data prior to Options Execution Venue in Period A,
48 The CAT Fees are designed to recover the costs such as any changes in costs related to the 49 Section B.7, Appendix C of the CAT NMS Plan,
associated with the CAT. Accordingly, CAT Fees retirement of existing regulatory systems, such as Approval Order at 85006.
would not be affected by increases or decreases in OATS.
other non-CAT expenses incurred by the SROs,
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![Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices 25491
keeping in view that comparability will pay lower fees. Therefore, given Electronic Comments
should consider affiliations among or that there is generally a relationship
between CAT Reporters (e.g., firms with between message traffic and market • Use the Commission’s Internet
multiple Industry Members or exchange share to the CAT Reporter’s size, smaller comment form (http://www.sec.gov/
licenses). Similarly, the 75/25 division CAT Reporters generally pay less than rules/sro.shtml); or
between Equity and Options Execution larger CAT Reporters. Accordingly, C2 • Send an email to rule-comments@
Venues maintains elasticity across the does not believe that the CAT Fees sec.gov. Please include File Number SR–
funding model as well as the greatest would have a disproportionate effect on C2–2017–017 on the subject line.
level of fee equitability and smaller or larger CAT Reporters. In
comparability based on the current addition, ATSs and exchanges will pay Paper Comments
number of Equity and Options the same fees based on market share.
Execution Venues. • Send paper comments in triplicate
Therefore, C2 does not believe that the to Secretary, Securities and Exchange
Finally, C2 believes that the proposed fees will impose any burden on the
fees are reasonable because they would Commission, 100 F Street NE.,
competition between ATSs and Washington, DC 20549–1090.
provide ease of calculation, ease of
exchanges. Accordingly, C2 believes
billing and other administrative All submissions should refer to File
that the proposed fees will minimize the
functions, and predictability of a fixed Number SR–C2–2017–017. This file
fee. Such factors are crucial to potential for adverse effects on
competition between CAT Reporters in number should be included on the
estimating a reliable revenue stream for
the market. subject line if email is used. To help the
the Company and for permitting CAT
Reporters to reasonably predict their Furthermore, the tiered, fixed fee Commission process and review your
payment obligations for budgeting funding model limits the disincentives comments more efficiently, please use
purposes. to providing liquidity to the market. only one method. The Commission will
Therefore, the proposed fees are post all comments on the Commission’s
B. Self-Regulatory Organization’s Internet Web site (http://www.sec.gov/
Statement on Burden on Competition structured to limit burdens on
competitive quoting and other liquidity rules/sro.shtml). Copies of the
Section 6(b)(8) of the Act 55 require provision in the market. submission, all subsequent
that C2 rules not impose any burden on amendments, all written statements
competition that is not necessary or C. Self-Regulatory Organization’s with respect to the proposed rule
appropriate. C2 does not believe that the Statement on Comments on the change that are filed with the
proposed rule change will result in any Proposed Rule Change Received From Commission, and all written
burden on competition that is not Members, Participants, or Others communications relating to the
necessary or appropriate in furtherance proposed rule change between the
of the purposes of the Act. C2 notes that Written comments were neither
solicited nor received. Commission and any person, other than
the proposed rule change implements those that may be withheld from the
provisions of the CAT NMS Plan III. Date of Effectiveness of the public in accordance with the
approved by the Commission, and is Proposed Rule Change and Timing for
designed to assist C2 in meeting its provisions of 5 U.S.C. 552, will be
Commission Action available for Web site viewing and
regulatory obligations pursuant to the
Plan. Similarly, all national securities printing in the Commission’s Public
The foregoing rule change has become
exchanges and FINRA are proposing Reference Room, 100 F Street NE.,
effective pursuant to Section 19(b)(3)(A)
this proposed fee schedule to of the Act 56 and paragraph (f) of Rule Washington, DC 20549, on official
implement the requirements of the CAT 19b–4 57 thereunder. At any time within business days between the hours of
NMS Plan. Therefore, this is not a 60 days of the filing of the proposed rule 10:00 a.m. and 3:00 p.m. Copies of the
competitive fee filing and, therefore, it change, the Commission summarily may filing also will be available for
does not raise competition issues temporarily suspend such rule change if inspection and copying at the principal
between and among the exchanges and it appears to the Commission that such office of the Exchange. All comments
FINRA. action is necessary or appropriate in the received will be posted without change;
Moreover, as previously described, C2 public interest, for the protection of the Commission does not edit personal
believes that the proposed rule change identifying information from
investors, or otherwise in furtherance of
fairly and equitably allocates costs submissions. You should submit only
the purposes of the Act. If the
among CAT Reporters. In particular, the information that you wish to make
Commission takes such action, the
proposed fee schedule is structured to available publicly. All submissions
Commission will institute proceedings
impose comparable fees on similarly should refer to File Number SR–C2–
to determine whether the proposed rule
situated CAT Reporters, and lessen the 2017–017, and should be submitted on
impact on smaller CAT Reporters. CAT change should be approved or
disapproved. or before June 22, 2017.
Reporters with similar levels of CAT
activity will pay similar fees. For IV. Solicitation of Comments For the Commission, by the Division of
example, Industry Members (other than Trading and Markets, pursuant to delegated
Execution Venue ATSs) with higher Interested persons are invited to authority.58
levels of message traffic will pay higher submit written data, views, and Eduardo A. Aleman,
fees, and those with lower levels of arguments concerning the foregoing,
mstockstill on DSK30JT082PROD with NOTICES
Assistant Secretary.
message traffic will pay lower fees. including whether the proposed rule [FR Doc. 2017–11362 Filed 5–31–17; 8:45 am]
Similarly, Execution Venue ATSs and change is consistent with the Act.
BILLING CODE 8011–01–P
other Execution Venues with larger Comments may be submitted by any of
market share will pay higher fees, and the following methods:
those with lower levels of market share
56 15 U.S.C. 78s(b)(3)(A).
55 15 U.S.C. 78f(b)(8) 57 17 CFR 240.19b–4(f). 58 17 CFR 200.30–3(a)(12).
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Document Created: 2017-06-01 03:05:31
Document Modified: 2017-06-01 03:05:31
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 25474 |
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