82 FR 25837 - Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use on Bats BYX Exchange, Inc.
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 106 (June 5, 2017)
Federal Register Volume 82, Issue 106 (June 5, 2017)
| Page Range | 25837-25856 | |
| FR Document | 2017-11504 |
[Federal Register Volume 82, Number 106 (Monday, June 5, 2017)] [Notices] [Pages 25837-25856] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-11504] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80809; File No. SR-BatsBYX-2017-11] Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use on Bats BYX Exchange, Inc. May 30, 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, Bats BYX Exchange, Inc. (the ``Exchange'' or ``Bats'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The Exchange has designated the proposed rule change as [[Page 25838]] one establishing or changing a member due, fee, or other charge imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposed rule change effective upon filing with the Commission. 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. \3\ 15 U.S.C. 78s(b)(3)(A)(ii). \4\ 17 CFR 240.19b-4(f)(2). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange filed a proposal to establish the fees for Industry Members related to the National Market System Plan Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'').\5\ --------------------------------------------------------------------------- \5\ Unless otherwise specified, capitalized terms used in this fee filing are defined as set forth herein, the CAT Compliance Rule Series or in the CAT NMS Plan. --------------------------------------------------------------------------- The text of the proposed rule change is available at the Exchange's Web site at www.bats.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts 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,\6\ NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE MKT LLC, NYSE Arca, Inc. and NYSE National, Inc.\7\ (collectively, the ``Participants'') filed with the Commission, pursuant to Section 11A of the Exchange Act \8\ and Rule 608 of Regulation NMS thereunder,\9\ the CAT NMS Plan.\10\ 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,\11\ and approved by the Commission, as modified, on November 15, 2016.\12\ 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.\13\ 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'').\14\ 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.\15\ Accordingly, Bats submits this fee filing to propose the Consolidated Audit Trail Funding Fees, which will require Industry Members that are Bats members to pay the CAT Fees determined by the Operating Committee. --------------------------------------------------------------------------- \6\ 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). \7\ 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). \8\ 15 U.S.C. 78k-1. \9\ 17 CFR 242.608. \10\ 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. \11\ Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 FR 30614 (May 17, 2016). \12\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (``Approval Order''). \13\ The Plan also serves as the limited liability company agreement for the Company. \14\ Section 11.1(b) of the CAT NMS Plan. \15\ 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 \16\) --------------------------------------------------------------------------- \16\ 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'') 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 [[Page 25839]] 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. Bats will issue a Regulatory Circular to its members when the billing mechanism is established, specifying the date when such invoicing of Industry Members will commence. (See Section 3(a)(2)(G) [sic] below) (2) Description of the CAT Funding Model Article XI of the CAT NMS Plan requires the Operating Committee to approve the operating budget, including projected costs of developing and operating the CAT for the upcoming year. As set forth in Article XI of the CAT NMS Plan, the CAT NMS Plan requires a bifurcated funding model, where costs associated with building and operating the Central Repository would be borne by (1) Participants and Industry Members that are Execution Venues through fixed tier fees based on market share, and (2) Industry Members (other than Execution Venue ATSs) through fixed tier fees based on message traffic. In its order approving the CAT NMS Plan, the Commission determined that the proposed funding model was ``reasonable'' \17\ and ``reflects a reasonable exercise of the Participants' funding authority to recover the Participants' costs related to the CAT.'' \18\ --------------------------------------------------------------------------- \17\ Approval Order at 84796. \18\ 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.'' \19\ The Commission further noted the following: --------------------------------------------------------------------------- \19\ 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.\20\ --------------------------------------------------------------------------- \20\ 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.\21\ 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.\22\ Additionally, a strictly variable or metered funding model based on message volume would be far more likely to affect market behavior and place an inappropriate burden on competition. Moreover, as the SEC noted in approving the CAT NMS Plan, ``[t]he Participants also have offered a reasonable basis for establishing a funding model based on broad tiers, in that it be may be easier to implement.'' \23\ --------------------------------------------------------------------------- \21\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order at 85006. \22\ In choosing a tiered fee structure, the SROs concluded that the variety of benefits offered by a tiered fee structure, discussed above, outweighed the fact that Industry Members in any particular tier would pay different rates per message traffic order event (e.g., an Industry Member with the largest amount of message traffic in one tier would pay a smaller amount per order event than an Industry Member in the same tier with the least amount of message traffic). Such variation is the natural result of a tiered fee structure. \23\ Approval Order at 84796. --------------------------------------------------------------------------- [[Page 25840]] 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.\24\ 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. --------------------------------------------------------------------------- \24\ 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.\25\ 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.\26\ 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.\27\ --------------------------------------------------------------------------- \25\ Approval Order at 85005. \26\ Id. \27\ 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)'' \28\ 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.\29\ 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.\30\ --------------------------------------------------------------------------- \28\ Id. at 84796. \29\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order at 85005. \30\ 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.\31\ 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.\32\ --------------------------------------------------------------------------- \31\ Section 11.2(c) of the CAT NMS Plan. \32\ 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.'' \33\ 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.'' \34\ --------------------------------------------------------------------------- \33\ Section 11.2(e) of the CAT NMS Plan. \34\ 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.\35\ 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.'' \36\ 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.'' \37\ --------------------------------------------------------------------------- \35\ Id. at 84792. \36\ 26 U.S.C. 501(c)(6). \37\ 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, 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. Bats 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 [[Page 25841]] 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 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 [[Page 25842]] 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] TN05JN17.000 ------------------------------------------------------------------------ Monthly average message traffic per Industry Industry Member tier Member (orders, quotes and cancels) ------------------------------------------------------------------------ Tier 1............................................... >10,000,000,000 Tier 2............................................... >1,000,000,000 Tier 3............................................... >100,000,000 Tier 4............................................... >2,500,000 Tier 5............................................... >200,000 Tier 6............................................... >50,000 Tier 7............................................... >5,000 Tier 8............................................... >1,000 Tier 9............................................... <=1,000 ------------------------------------------------------------------------ Based on the above analysis, the Operating Committee approved the following Industry Member Percentages and Recovery Allocations: ---------------------------------------------------------------------------------------------------------------- Percentage of Percentage of Industry Percentage of Industry Member tier Industry Member total 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 [[Page 25843]] 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.\38\ 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.\39\ 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. --------------------------------------------------------------------------- \38\ 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. \39\ 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.\40\ --------------------------------------------------------------------------- \40\ 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).'' \41\ --------------------------------------------------------------------------- \41\ 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.\42\ --------------------------------------------------------------------------- \42\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order at 85005. --------------------------------------------------------------------------- Given the differences between Execution Venues that trade NMS Stocks and/or OTC Equity Securities and Execution Venues that trade Listed Options, Section 11.3(a) addresses Execution Venues that trade NMS Stocks and/or OTC Equity Securities separately from Execution Venues that trade Listed Options. Equity and Options Execution Venues are treated separately for two reasons. First, the differing quoting behavior of Equity and Options Execution Venues makes comparison of activity between Execution Venues difficult. Second, Execution Venue tiers are calculated based on market share of share volume, and it is therefore difficult to compare market share between asset classes (i.e., equity shares versus options contracts). Discussed below is how the funding model treats the two types of Execution Venues. (I) NMS Stocks and OTC Equity Securities Section 11.3(a)(i) of the CAT NMS Plan states that each Execution Venue that (i) executes transactions or, (ii) in the case of a national securities association, has trades reported by its [[Page 25844]] 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 ---------------------------------------------------------------------------------------------------------------- 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 [[Page 25845]] market share thresholds, but rather by fixed percentages of Equity Execution Venues across tiers to account for fluctuating levels of market share across time. Actual market share in any tier will vary based on the actual market activity in a given measurement period, as well as the number of Equity Execution Venues included in the measurement period. The Equity Execution Venue Percentages and Equity Execution Venue Recovery Allocation for each tier will remain fixed with each Equity Execution Venue tier to be reassigned periodically, as described below in Section 3(a)(1)(I) [sic]. ------------------------------------------------------------------------ Equity market Equity Execution Venue tier share of share volume ------------------------------------------------------------------------ Tier 1.................................................. >=1 Tier 2.................................................. <1 ------------------------------------------------------------------------ (II) Listed Options Section 11.3(a)(ii) of the CAT NMS Plan states that each Execution Venue that executes transactions in Listed Options will pay a fixed fee depending on the Listed Options market share of that Execution Venue, with the Operating Committee establishing at least two and no more than five tiers of fixed fees, based on an Execution Venue's Listed Options market share. For these purposes, market share will be calculated by contract volume. In accordance with Section 11.3(a)(ii) of the CAT NMS Plan, the Operating Committee approved a tiered fee structure for Options Execution Venues. In determining the tiers, the Operating Committee considered the funding principles set forth in Section 11.2 of the CAT NMS Plan, seeking to create funding tiers that take into account the relative impact on system resources of different Options Execution Venues, and that establish comparable fees among the CAT Reporters with the most Reportable Events. Each Options Execution Venue will be placed into one of two tiers of fixed fees, based on the Execution Venue's Listed Options market share. In choosing two tiers, the Operating Committee performed an analysis similar to that discussed above 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]. ------------------------------------------------------------------------ Options market Options Execution Venue tier share of share volume ------------------------------------------------------------------------ Tier 1.................................................. >=1 Tier 2.................................................. <1 ------------------------------------------------------------------------ (III) Market Share/Tier Assignments The Operating Committee determined that, prior to the start of CAT reporting, market share for Execution Venues [[Page 25846]] 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.\43\ --------------------------------------------------------------------------- \43\ It is anticipated that CAT-related costs incurred prior to November 21, 2016 will be addressed via a separate fee filing. --------------------------------------------------------------------------- The Plan Processor costs relate to costs incurred by the Plan Processor and consist of the Plan Processor's current estimates of average yearly ongoing costs, including development cost, which total $37,500,000. This amount is based upon the fees due to the Plan Processor pursuant to the agreement with the Plan Processor. The non-Plan Processor estimated costs incurred and to be incurred by the Company through November 21, 2017 consist of three categories of costs. The first category of such costs are third party support costs, which include historic legal fees, consulting fees and audit fees from November 21, 2016 until the date of filing as well as estimated third party support costs for the rest of the year. These amount to an estimated $5,200,000. The second category of non-Plan Processor costs are estimated insurance costs for the year. Based on discussions with potential insurance providers, assuming $2-5 million insurance premium on $100 million in [[Page 25847]] 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.... \44\ 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: \45\ --------------------------------------------------------------------------- \44\ This $5,000,000 represents the gradual accumulation of the funds for a target operating reserve of $11,425,000. \45\ Note that all monthly, quarterly and annual CAT Fees have been rounded to the nearest dollar. --------------------------------------------------------------------------- For Industry Members (other than Execution Venue ATSs): ---------------------------------------------------------------------------------------------------------------- Monthly CAT Quarterly CAT CAT Fees paid Tier Fee Fee annually \46\ ---------------------------------------------------------------------------------------------------------------- 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: --------------------------------------------------------------------------- \46\ 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 \47\ ---------------------------------------------------------------------------------------------------------------- 1............................................................... $21,125 $63,375 $253,500 2............................................................... 12,940 38,820 155,280 ---------------------------------------------------------------------------------------------------------------- For Execution Venues for Listed Options: --------------------------------------------------------------------------- \47\ 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 \48\ ---------------------------------------------------------------------------------------------------------------- 1............................................................... $19,205 $57,615 $230,460 2............................................................... 13,204 39,612 158,448 ---------------------------------------------------------------------------------------------------------------- As noted above, the fees set forth in the tables reflect the Operating Committee's decision to ensure comparable fees between Execution Venues and Industry Members. The fees of the top tiers for Industry Members (other than Execution Venue ATSs) are not identical to the top tier for Execution Venues, however, because the [[Page 25848]] 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. --------------------------------------------------------------------------- \48\ 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). --------------------------------------------------------------------------- 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 Industry Member tier of Industry Members ------------------------------------------------------------------------ Tier 1............................................... 8 Tier 2............................................... 41 Tier 3............................................... 35 Tier 4............................................... 75 Tier 5............................................... 59 Tier 6............................................... 65 Tier 7............................................... 285 Tier 8............................................... 328 Tier 9............................................... 735 ------------------ Total............................................ 1,631 ------------------------------------------------------------------------ BILLING CODE 8011-01-P [[Page 25849]] [GRAPHIC] [TIFF OMITTED] TN05JN17.001 BILLING CODE 8011-01-C [[Page 25850]] Calculation of Annual Tier Fees for Equity Execution Venues [``EV''] ---------------------------------------------------------------------------------------------------------------- Percentage of Equity Percentage of Percentage of Equity Execution Venue tier Execution Execution total recovery Venues Venue recovery ---------------------------------------------------------------------------------------------------------------- Tier 1.......................................................... 25.00 26.00 6.50 Tier 2.......................................................... 75.00 49.00 12.25 ----------------------------------------------- Total....................................................... 100 75 18.75 ---------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ Estimated number Equity Execution Venue tier of Equity Execution Venues ------------------------------------------------------------------------ Tier 1............................................... 13 Tier 2............................................... 40 ------------------ Total............................................ 53 ------------------------------------------------------------------------ [GRAPHIC] [TIFF OMITTED] TN05JN17.002 Calculation of Annual Tier Fees for Options Execution Venues [``EV''] ---------------------------------------------------------------------------------------------------------------- Percentage of Options Percentage of Percentage of Options Execution Venue tier Execution Execution total recovery Venues Venue recovery ---------------------------------------------------------------------------------------------------------------- Tier 1.......................................................... 75.00 20.00 5.00 Tier 2.......................................................... 25.00 5.00 1.25 ----------------------------------------------- Total....................................................... 100 25 6.25 ---------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ Estimated number Options Execution Venue tier of Options Execution Venues ------------------------------------------------------------------------ Tier 1............................................... 11 Tier 2............................................... 4 ------------------ Total............................................ 15 ------------------------------------------------------------------------ [[Page 25851]] [GRAPHIC] [TIFF OMITTED] TN05JN17.003 --------------------------------------------------------------------------- \49\ The amount in excess of the total CAT costs will contribute to the gradual accumulation of the target operating reserve of $11.425 million. Traceability of Total CAT Fees ---------------------------------------------------------------------------------------------------------------- Estimated Type Industry Member tier number of CAT fees paid Total recovery members annually ---------------------------------------------------------------------------------------------------------------- Industry Members.................... Tier 1.................... 8 $404,016 $3,232,128 Tier 2.................... 41 324,612 13,309,092 Tier 3.................... 35 230,868 8,080,380 Tier 4.................... 75 79,860 5,989,500 Tier 5.................... 59 49,956 2,947,404 Tier 6.................... 65 30,720 1,996,800 Tier 7.................... 285 6,012 1,713,420 Tier 8.................... 328 1,740 570,720 Tier 9.................... 735 264 194,040 ----------------------------------------------- Total........................... .......................... 1,631 .............. 38,033,484 ---------------------------------------------------------------------------------------------------------------- Equity Execution Venues............. Tier 1.................... 13 253,500 3,295,500 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 \49\................. .......................... .............. .............. 9,036 ---------------------------------------------------------------------------------------------------------------- (F) Comparability of Fees The funding principles require a funding model in which the fees charged to the CAT Reporters with the most CAT-related activity (measured by market share and/or message traffic, as applicable) are generally comparable (where, for these comparability purposes, the tiered fee structure takes into consideration affiliations between or among CAT Reporters, whether Execution Venue and/or Industry Members). Accordingly, in creating the model, the Operating Committee sought to take account of the affiliations between or among CAT Reporters--that is, where affiliated entities may have multiple Industry Member and/or Execution Venue licenses, by maintaining relative comparability of fees among such affiliations with the most expected CAT-related activity. To do this, the Participants identified representative affiliations in the largest tier of both Execution Venues and Industry Members and compared the aggregate fees that would be paid by such firms. 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: \50\ --------------------------------------------------------------------------- \50\ 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. [[Page 25852]] Execution Venue Complexes ---------------------------------------------------------------------------------------------------------------- Listing of Equity Listing of Options Total fees by Execution Venue complex Execution Venue tiers Execution Venue tier EV complex ---------------------------------------------------------------------------------------------------------------- Execution Venue Complex 1............... Tier 1 (x2)...... Tier 1 (x4)...... $1,900,962 Tier 2 (x1)...... Tier 2 (x2)...... Execution Venue Complex 2............... Tier 1 (x2)...... Tier 1 (x2)...... 1,863,801 Tier 2 (x1)...... Execution Venue Complex 3............... Tier 1 (x2)...... Tier 1 (x2)...... 1,278,447 Tier 2 (x2)...... ---------------------------------------------------------------------------------------------------------------- Industry Member Complexes ---------------------------------------------------------------------------------------------------------------- Listing of Industry Member Total fees by Industry Member complex tiers Listing of ATS tiers IM complex ---------------------------------------------------------------------------------------------------------------- Industry Member Complex 1............... Tier 1 (x2)...... Tier 2 (x1)...... $963,300 Industry Member Complex 2............... Tier 1 (x1)...... Tier 2 (x3)...... 949,674 Tier 4 (x1)...... Industry Member Complex 3............... Tier 1 (x1)...... Tier 2 (x1)...... 883,888 Tier 2 (x1)...... Industry Member Complex 4............... Tier 1 (x1)...... N/A.............. 808,472 Tier 2 (x1)...... Tier 4 (x1)...... Industry Member Complex 5............... Tier 2 (x1)...... Tier 2 (x1)...... 796,595 Tier 3 (x1)...... Tier 4 (x1)...... Tier 7 (x1)...... ---------------------------------------------------------------------------------------------------------------- (G) Billing Onset Under Section 11.1(c) of the CAT NMS Plan, to fund the development and implementation of the CAT, the Company shall time the imposition and collection of all fees on Participants and Industry Members in a manner reasonably related to the timing when the Company expects to incur such 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. Bats will issue a Regulatory Circular to its members when the billing mechanism is established, specifying the date when such invoicing of Industry Members will commence. (H) Changes to Fee Levels and Tiers Section 11.3(d) of the CAT NMS Plan states that ``[t]he Operating Committee shall review such fee schedule on at least an annual basis and shall make any changes to such fee schedule that it deems appropriate. The Operating Committee is authorized to review such fee schedule on a more regular basis, but shall not make any changes on more than a semi-annual basis unless, pursuant to a Supermajority Vote, the Operating Committee concludes that such change is necessary for the adequate funding of the Company.'' With such reviews, the Operating Committee will review the distribution of Industry Members and Execution Venues across tiers, and make any updates to the percentage of CAT Reporters allocated to each tier as may be necessary. In addition, the reviews will evaluate the estimated ongoing CAT costs and the level of the operating reserve. To the extent that the total CAT costs decrease, the fees would be adjusted downward, and, to the extent that the total CAT costs increase, the fees would be adjusted upward.\51\ 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.\52\ 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 Bats 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). --------------------------------------------------------------------------- \51\ 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. \52\ 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. Bats 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, Bats notes that the percentage of CAT Reporters in each assigned tier is relative. Therefore, a CAT Reporter's assigned tier will [[Page 25853]] depend, not only on its own message traffic or market share, but it also will depend on the message traffic/market share across all CAT Reporters. For example, the percentage of Industry Members (other than Execution Venue ATSs) in each tier is relative such that such Industry Member's assigned tier will depend on message traffic generated across all CAT Reporters as well as the total number of CAT Reporters. The Operating Committee will inform CAT Reporters of their assigned tier every three months following the periodic tiering process, as the funding model will compare an individual CAT Reporter's activity to that of other CAT Reporters in the marketplace. The following demonstrates a tier reassignment. In accordance with the funding model, the top 75% of Options Execution Venues in market share are categorized as Tier 1 while the bottom 25% of Options Execution Venues in market share are categorized as Tier 2. In the sample scenario below, Options Execution Venue L is initially categorized as a Tier 2 Options Execution Venue in Period A due to its market share. When market share is recalculated for Period B, the market share of Execution Venue L increases, and it is therefore subsequently reranked and reassigned to Tier 1 in Period B. Correspondingly, Options Execution Venue K, initially a Tier 1 Options Execution Venue in Period A, is reassigned to Tier 2 in Period B due to decreases in its market share of share volume. -------------------------------------------------------------------------------------------------------------------------------------------------------- Period A Period B -------------------------------------------------------------------------------------------------------------------------------------------------------- Market share Market share Options Execution Venue rank Tier Options Execution Venue rank Tier -------------------------------------------------------------------------------------------------------------------------------------------------------- Options Execution Venue A...................... 1 1 Options Execution Venue A.............. 1 1 Options Execution Venue B...................... 2 1 Options Execution Venue B.............. 2 1 Options Execution Venue C...................... 3 1 Options Execution Venue C.............. 3 1 Options Execution Venue D...................... 4 1 Options Execution Venue D.............. 4 1 Options Execution Venue E...................... 5 1 Options Execution Venue E.............. 5 1 Options Execution Venue F...................... 6 1 Options Execution Venue F.............. 6 1 Options Execution Venue G...................... 7 1 Options Execution Venue I.............. 7 1 Options Execution Venue H...................... 8 1 Options Execution Venue H.............. 8 1 Options Execution Venue I...................... 9 1 Options Execution Venue G.............. 9 1 Options Execution Venue J...................... 10 1 Options Execution Venue J.............. 10 1 Options Execution Venue K...................... 11 1 Options Execution Venue L.............. 11 1 Options Execution Venue L...................... 12 2 Options Execution Venue K.............. 12 2 Options Execution Venue M...................... 13 2 Options Execution Venue N.............. 13 2 Options Execution Venue N...................... 14 2 Options Execution Venue M.............. 14 2 Options Execution Venue O...................... 15 2 Options Execution Venue O.............. 15 2 -------------------------------------------------------------------------------------------------------------------------------------------------------- (3) Proposed CAT Fee Schedule Bats proposes the Consolidated Audit Trail Funding Fees to implement the CAT Fees determined by the Operating Committee on SRO's Industry Members. The proposed fee schedule has three sections, covering definitions, the fee schedule for CAT Fees, and the timing and manner of payments. Each of these sections is discussed in detail below. (A) Definitions Paragraph (a) of the proposed fee schedule sets forth the definitions for the proposed fee schedule. Paragraph (a)(1) states that, for purposes of the Consolidated Audit Trail Funding Fees, the terms ``CAT NMS Plan,'' ``Industry Member,'' ``NMS Stock,'' ``OTC Equity Security'', and ``Participant'' are defined as set forth in Rule 4.5 (Consolidated Audit Trail--Definitions). The proposed fee schedule imposes different fees on Equity ATSs and Industry Members that are not Equity ATSs. Accordingly, the proposed fee schedule defines the term ``Equity ATS.'' First, paragraph (a)(2) defines an ``ATS'' to mean an alternative trading system as defined in Rule 300(a) of Regulation ATS under the Securities Exchange Act of 1934, as amended, that operates pursuant to Rule 301 of Regulation ATS. This is the same definition of an ATS as set forth in Section 1.1 of the CAT NMS Plan in the definition of an ``Execution Venue.'' Then, paragraph (a)(4) defines an ``Equity ATS'' as an ATS that executes transactions in NMS Stocks and/or OTC Equity Securities. Paragraph (a)(3) of the proposed fee schedule defines the term ``CAT Fee'' to mean the Consolidated Audit Trail Funding Fee(s) to be paid by Industry Members as set forth in paragraph (b) in the proposed fee schedule. Finally, Paragraph (a)(6) defines an ``Execution Venue'' as a Participant or an ATS (excluding any such ATS that does not execute orders). This definition is the same substantive definition as set forth in Section 1.1 of the CAT NMS Plan. Paragraph (a)(5) defines an ``Equity Execution Venue'' as an Execution Venue that trades NMS Stocks and/or OTC Equity Securities. (B) Fee Schedule Bats proposes to impose the CAT Fees applicable to its Industry Members through paragraph (b) of the proposed fee schedule. Paragraph (b)(1) of the proposed fee schedule sets forth the CAT Fees applicable to Industry Members other than Equity ATSs. Specifically, paragraph (b)(1) states that the Company will assign each Industry Member (other than an Equity ATS) to a fee tier once every quarter, where such tier assignment is calculated by ranking each Industry Member based on its total message traffic for the three months prior to the quarterly tier calculation day and assigning each Industry Member to a tier based on that ranking and predefined Industry Member percentages. The Industry Members with the highest total quarterly message traffic will be ranked in Tier 1, and the Industry Members with lowest quarterly message traffic will be ranked in Tier 9. Each quarter, each Industry Member (other than an Equity ATS) shall pay the following CAT Fee corresponding to the tier assigned by the Company for such Industry Member for that quarter: ------------------------------------------------------------------------ Percentage of Tier industry Quarterly CAT members fee ------------------------------------------------------------------------ 1....................................... 0.500 $101,004 2....................................... 2.500 81,153 3....................................... 2.125 57,717 4....................................... 4.625 19,965 5....................................... 3.625 12,489 6....................................... 4.000 7,680 7....................................... 17.500 1,503 8....................................... 20.125 435 [[Page 25854]] 9....................................... 45.000 66 ------------------------------------------------------------------------ Paragraph (b)(2) of the proposed fee schedule sets forth the CAT Fees applicable to Equity ATSs.\53\ These are the same fees that Participants that trade NMS Stocks and/or OTC Equity Securities will pay. Specifically, paragraph (b)(2) states that the Company will assign each Equity ATS to a fee tier once every quarter, where such tier assignment is calculated by ranking each Equity Execution Venue based on its total market share of NMS Stocks and OTC Equity Securities for the three months prior to the quarterly tier calculation day and assigning each Equity Execution Venue to a tier based on that ranking and predefined Equity Execution Venue percentages. The Equity Execution Venues with the higher total quarterly market share will be ranked in Tier 1, and the Equity Execution Venues with the lower quarterly market share will be ranked in Tier 2. Specifically, paragraph (b)(2) states that, each quarter, each Equity ATS shall pay the following CAT Fee corresponding to the tier assigned by the Company for such Equity ATS for that quarter: --------------------------------------------------------------------------- \53\ Note that no fee schedule is provided for Execution Venue ATSs that execute transactions in Listed Options, as no such Execution Venue ATSs currently exist due trading restrictions related to Listed Options. ------------------------------------------------------------------------ Percentage of Equity Quarterly CAT Tier Execution fee Venues ------------------------------------------------------------------------ 1....................................... 25.00 $63,375 2....................................... 75.00 38,820 ------------------------------------------------------------------------ (C) Timing and Manner of Payment Section 11.4 of the CAT NMS Plan states that the Operating Committee shall establish a system for the collection of fees authorized under the CAT NMS Plan. The Operating Committee may include such collection responsibility as a function of the Plan Processor or another administrator. To implement the payment process to be adopted by the Operating Committee, paragraph (c)(1) of the proposed fee schedule states that the Company will provide each Industry Member with one invoice each quarter for its CAT Fees as determined pursuant to paragraph (b) of the proposed fee schedule, regardless of whether the Industry Member is a member of multiple self-regulatory organizations. Paragraph (c)(1) further states that each Industry Member will 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. Bats 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.\54\ --------------------------------------------------------------------------- \54\ 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, Bats proposes to adopt paragraph (c)(2) of the proposed fee schedule. Paragraph (c)(2) of the proposed fee schedule states that each Industry Member shall pay CAT Fees within thirty days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). If an Industry Member fails to pay any such fee when due, such Industry Member shall pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of: (i) The Prime Rate plus 300 basis points; or (ii) the maximum rate permitted by applicable law. 2. Statutory Basis Bats believes that the proposed rule change is consistent with the provisions of Section 6(b)(5) of the Act,\55\ which require, among other things, that the SRO 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,\56\ which requires that SRO 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. Bats 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. --------------------------------------------------------------------------- \55\ 15 U.S.C. 78f(b)(5). \56\ 15 U.S.C. 78f(b)(4). --------------------------------------------------------------------------- Bats 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 Bats 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.'' \57\ To the extent that this proposal implements, interprets or clarifies the Plan and applies specific requirements to Industry Members, Bats believes that this proposal furthers the objectives of the Plan, as identified by the SEC, and is therefore consistent with the Act. --------------------------------------------------------------------------- \57\ Approval Order at 84697. --------------------------------------------------------------------------- Bats 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, Bats believes [[Page 25855]] that the total level of the CAT Fees is reasonable. In addition, Bats 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, Bats believes that the division of the total CAT costs between Industry Members and Execution Venues, and the division of the Execution Venue portion of total costs between Equity and Options Execution Venues, is reasonably designed to allocate CAT costs among CAT Reporters. The 75/25 division between Industry Members and Execution Venues maintains the greatest level of comparability across the funding model, keeping in view that comparability should consider affiliations among or between CAT Reporters (e.g., firms with multiple Industry Members or exchange licenses). Similarly, the 75/25 division between Equity and Options Execution Venues maintains elasticity across the funding model as well as the greatest level of fee equitability and comparability based on the current number of Equity and Options Execution Venues. Finally, Bats 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 \58\ require that SRO rules not impose any burden on competition that is not necessary or appropriate. Bats 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. Bats notes that the proposed rule change implements provisions of the CAT NMS Plan approved by the Commission, and is designed to assist Bats 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. --------------------------------------------------------------------------- \58\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- Moreover, as previously described, Bats 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, Bats 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, Bats does not believe that the fees will impose any burden on the competition between ATSs and exchanges. Accordingly, Bats 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 \59\ and paragraph (f) of Rule 19b-4 thereunder.\60\ 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. --------------------------------------------------------------------------- \59\ 15 U.S.C. 78s(b)(3)(A). \60\ 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 proposal 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-BatsBYX-2017-11 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-BatsBYX-2017-11. 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 [[Page 25856]] 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 such filing will also 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-BatsBYX-2017-11 and should be submitted on or before June 26, 2017. --------------------------------------------------------------------------- \61\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\61\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-11504 Filed 6-2-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices 25837
force designation of Immediate-Or- Members a competitive alternative on post all comments on the Commission’s
Cancel.53 MRX for submitting orders for Internet Web site (http://www.sec.gov/
The Exchange notes that Members are execution. rules/sro.shtml). Copies of the
aware of the Exchange’s efforts to Delaying the implementation of the submission, all subsequent
replatform to the INET technology. Directed Order functionality will allow amendments, all written statements
Members have been involved in testing additional time to rebuild this with respect to the proposed rule
the system and providing feedback to technology on the new platform and change that are filed with the
the Exchange throughout this migration provide maximum benefit to Members Commission, and all written
process. Members were provided notice for a successful rollout. No Member will communications relating to the
of this proposed change to the system. be able to utilize the Directed Order proposed rule change between the
The Exchange intends to make clear the functionality with the delay. Members Commission and any person, other than
implementation of this functionality have been given adequate notice of the those that may be withheld from the
within its Rulebook. implementation dates. public in accordance with the
B. Self-Regulatory Organization’s provisions of 5 U.S.C. 552, will be
C. Self-Regulatory Organization’s available for Web site viewing and
Statement on Burden on Competition Statement on Comments on the printing in the Commission’s Public
The Exchange does not believe that Proposed Rule Change Received From Reference Room, 100 F Street NE.,
the proposed rule change will impose Members, Participants, or Others Washington, DC 20549, on official
any burden on competition not No written comments were either business days between the hours of
necessary or appropriate in furtherance solicited or received. 10:00 a.m. and 3:00 p.m. Copies of the
of the purposes of the Act. As explained filing also will be available for
above, the Exchange is re-platforming III. Date of Effectiveness of the
inspection and copying at the principal
it’s trading system onto the Nasdaq Proposed Rule Change and Timing for
office of the Exchange. All comments
INET architecture, and is making certain Commission Action
received will be posted without change;
other changes to its trading functionality Within 45 days of the date of the Commission does not edit personal
in connection with this migration. A publication of this notice in the Federal identifying information from
majority of the functionality that is Register or within such longer period submissions. You should submit only
being added with the proposed rule up to 90 days (i) as the Commission may information that you wish to make
change already exists on one or more designate if it finds such longer period available publicly. All submissions
Nasdaq Exchanges. As a result, the to be appropriate and publishes its should refer to File Number SR–MRX–
Exchange does not believe that the reasons for so finding or (ii) as to which 2017–02 and should be submitted on or
proposed rule change will impact the the self-regulatory organization before June 26, 2017.
intense competition that exists in the consents, the Commission will: For the Commission, by the Division of
options market. In fact, the Exchange (A) By order approve or disapprove Trading and Markets, pursuant to delegated
believes that adopting this functionality such proposed rule change, or authority.54
on MRX will allow the Exchange to (B) institute proceedings to determine Eduardo A. Aleman,
more effectively compete for order flow whether the proposed rule change Assistant Secretary.
with other options markets. should be disapproved.
The Exchange does not believe [FR Doc. 2017–11509 Filed 6–2–17; 8:45 am]
conducting price or other reasonability IV. Solicitation of Comments BILLING CODE 8011–01–P
checks for all Cancel and Replace Interested persons are invited to
Orders imposes an undue burden on submit written data, views, and
competition because all Cancel and SECURITIES AND EXCHANGE
arguments concerning the foregoing,
COMMISSION
Replace Orders will uniformly be including whether the proposed rule
subject to this additional protection change is consistent with the Act. [Release No. 34–80809; File No. SR–
based on the current market conditions. Comments may be submitted by any of BatsBYX–2017–11]
Permitting all market participants to the following methods:
reduce their exposure without penalty Self-Regulatory Organizations; Bats
does not impose an undue burden [sic] Electronic Comments BYX Exchange, Inc.; Notice of Filing
competition, rather it promotes • Use the Commission’s Internet and Immediate Effectiveness of a
competition by allowing participants comment form (http://www.sec.gov/ Proposed Rule Change Related to Fees
the ability to change their orders in a rules/sro.shtml); or for Use on Bats BYX Exchange, Inc.
changing market, provided the order • Send an email to rule- May 30, 2017.
was not already filled. The Exchange comments@sec.gov. Please include File Pursuant to Section 19(b)(1) of the
believes that not permitting Reserve Number SR–MRX–2017–02 on the Securities Exchange Act of 1934 (the
Orders to retain priority if size is subject line. ‘‘Act’’),1 and Rule 19b–4 thereunder,2
amended does not create an undue Paper Comments notice is hereby given that on May 16,
burden on competition because all 2017, Bats BYX Exchange, Inc. (the
Members will be treated in a uniform • Send paper comments in triplicate ‘‘Exchange’’ or ‘‘Bats’’) filed with the
manner with respect to Cancel and to Secretary, Securities and Exchange Securities and Exchange Commission
Commission, 100 F Street NE.,
asabaliauskas on DSKBBXCHB2PROD with NOTICES
Replace Order handling. (‘‘Commission’’) the proposed rule
The Exchange does not believe that Washington, DC 20549–1090. change as described in Items I, II and III
the proposed rule change to All-or-None All submissions should refer to File below, which Items have been prepared
Orders will impact the intense Number SR–MRX–2017–02. This file by the Exchange. The Exchange has
competition that exists in the options number should be included on the designated the proposed rule change as
market because the All-Or-None Order subject line if email is used. To help the
type, as proposed, will continue to offer Commission process and review your 54 17 CFR 200.30–3(a)(12).
comments more efficiently, please use 1 15 U.S.C. 78s(b)(1).
53 See NOM Rules, Chapter VI, Section 1(g)(2). only one method. The Commission will 2 17 CFR 240.19b–4.
VerDate Sep<11>2014 17:31 Jun 02, 2017 Jkt 241001 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 E:\FR\FM\05JNN1.SGM 05JNN1](https://thefederalregister.org/doc/82_FR_25943/page/1.svg)
![25838 Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices
one establishing or changing a member NASDAQ PHLX LLC, The NASDAQ to propose the Consolidated Audit Trail
due, fee, or other charge imposed by the Stock Market LLC, New York Stock Funding Fees, which will require
Exchange under Section 19(b)(3)(A)(ii) Exchange LLC, NYSE MKT LLC, NYSE Industry Members that are Bats
of the Act 3 and Rule 19b–4(f)(2) Arca, Inc. and NYSE National, Inc.7 members to pay the CAT Fees
thereunder,4 which renders the (collectively, the ‘‘Participants’’) filed determined by the Operating
proposed rule change effective upon with the Commission, pursuant to Committee.
filing with the Commission. The Section 11A of the Exchange Act 8 and (1) Executive Summary
Commission is publishing this notice to Rule 608 of Regulation NMS
solicit comments on the proposed rule thereunder,9 the CAT NMS Plan.10 The The following provides an executive
change from interested persons. Participants filed the Plan to comply summary of the CAT funding model
with Rule 613 of Regulation NMS under approved by the Operating Committee,
I. Self-Regulatory Organization’s as well as Industry Members’ rights and
Statement of the Terms of Substance of the Exchange Act. The Plan was
published for comment in the Federal obligations related to the payment of
the Proposed Rule Change CAT Fees calculated pursuant to the
Register on May 17, 2016,11 and
The Exchange filed a proposal to approved by the Commission, as CAT funding model. A detailed
establish the fees for Industry Members modified, on November 15, 2016.12 The description of the CAT funding model
related to the National Market System Plan is designed to create, implement and the CAT Fees follows this executive
Plan Governing the Consolidated Audit and maintain a consolidated audit trail summary.
Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’).5 (‘‘CAT’’) that would capture customer
The text of the proposed rule change (A) CAT Funding Model
and order event information for orders
is available at the Exchange’s Web site • CAT Costs. The CAT funding model
in NMS Securities and OTC Equity is designed to establish CAT-specific
at www.bats.com, at the principal office Securities, across all markets, from the
of the Exchange, and at the fees to collectively recover the costs of
time of order inception through routing, building and operating the CAT from all
Commission’s Public Reference Room.
cancellation, modification, or execution CAT Reporters, including Industry
II. Self-Regulatory Organization’s in a single consolidated data source. Members and Participants. The overall
Statement of the Purpose of, and The Plan accomplishes this by creating CAT costs for the calculation of the CAT
Statutory Basis for, the Proposed Rule CAT NMS, LLC (the ‘‘Company’’), of Fees in this fee filing are comprised of
Change which each Participant is a member, to Plan Processor CAT costs and non-Plan
In its filing with the Commission, the operate the CAT.13 Under the CAT NMS Processor CAT costs incurred, and
Exchange included statements Plan, the Operating Committee of the estimated to be incurred, from
concerning the purpose of and basis for Company (‘‘Operating Committee’’) has November 21, 2016 through November
the proposed rule change and discussed discretion to establish funding for the 21, 2017. (See Section 3(a)(2)(E) [sic]
any comments it received on the Company to operate the CAT, including below 16)
proposed rule change. The text of these establishing fees that the Participants • Bifurcated Funding Model. The
statements may be examined at the will pay, and establishing fees for CAT NMS Plan requires a bifurcated
places specified in Item IV below. The Industry Members that will be funding model, where costs associated
Exchange has prepared summaries, set implemented by the Participants (‘‘CAT with building and operating the CAT
forth in Sections A, B, and C below, of Fees’’).14 The Participants are required would be borne by (1) Participants and
the most significant parts of such to file with the SEC under Section 19(b) Industry Members that are Execution
statements. of the Exchange Act any such CAT Fees Venues for Eligible Securities through
applicable to Industry Members that the fixed tier fees based on market share,
(A) Self-Regulatory Organization’s Operating Committee approves.15 and (2) Industry Members (other than
Statement of the Purpose of, and Accordingly, Bats submits this fee filing alternative trading systems (‘‘ATSs’’)
Statutory Basis for, the Proposed Rule that execute transactions in Eligible
Change and Nasdaq ISE, LLC, respectively. See Securities Securities (‘‘Execution Venue ATSs’’))
Exchange Act Rel. No. 80248 (Mar. 15, 2017), 82 FR
1. Purpose 14547 (Mar. 21, 2017); Securities Exchange Act Rel.
through fixed tier fees based on message
No. 80326 (Mar. 29, 2017), 82 FR 16460 (Apr. 4, traffic for Eligible Securities. (See
Bats BYX Exchange, Inc., Bats BZX
2017); and Securities Exchange Act Rel. No. 80325 Section 3(a)(2) [sic] below)
Exchange, Inc., Bats EDGA Exchange, (Mar. 29, 2017), 82 FR 16445 (Apr. 4, 2017). • Industry Member Fees. Each
Inc., Bats EDGX Exchange, Inc., BOX 7 National Stock Exchange, Inc. has been renamed
Industry Member (other than Execution
Options Exchange LLC, C2 Options NYSE National, Inc. See Securities Exchange Act
Venue ATSs) will be placed into one of
Exchange, Incorporated, Chicago Board Rel. No. 79902 (Jan. 30, 2017), 82 FR 9258 (Feb. 3,
2017). nine tiers of fixed fees, based on
Options Exchange, Incorporated, 8 15 U.S.C. 78k–1. ‘‘message traffic’’ in Eligible Securities
Chicago Stock Exchange, Inc., Financial 9 17 CFR 242.608. for a defined period (as discussed
Industry Regulatory Authority, Inc. 10 See Letter from the Participants to Brent J.
below). Prior to the start of CAT
(‘‘FINRA’’), Investors’ Exchange LLC, Fields, Secretary, Commission, dated September 30, reporting, ‘‘message traffic’’ will be
Miami International Securities 2014; and Letter from Participants to Brent J. Fields,
comprised of historical equity and
Exchange, LLC, MIAX PEARL, LLC, Secretary, Commission, dated February 27, 2015.
On December 24, 2015, the Participants submitted equity options orders, cancels and
NASDAQ BX, Inc., Nasdaq GEMX, LLC, an amendment to the CAT NMS Plan. See Letter quotes provided by each exchange and
Nasdaq ISE, LLC, Nasdaq MRX, LLC,6 from Participants to Brent J. Fields, Secretary, FINRA over the previous three months.
asabaliauskas on DSKBBXCHB2PROD with NOTICES
Commission, dated December 23, 2015.
3 15 11 Securities Exchange Act Rel. No. 77724 (Apr.
After an Industry Member begins
U.S.C. 78s(b)(3)(A)(ii).
4 17 27, 2016), 81 FR 30614 (May 17, 2016). reporting to the CAT, ‘‘message traffic’’
CFR 240.19b–4(f)(2).
5 Unless otherwise specified, capitalized terms 12 Securities Exchange Act Rel. No. 79318 (Nov. will be calculated based on the Industry
used in this fee filing are defined as set forth herein, 15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘Approval Member’s Reportable Events reported to
the CAT Compliance Rule Series or in the CAT Order’’).
13 The Plan also serves as the limited liability
NMS Plan. 16 The Commission notes that references to
6 ISE Gemini, LLC, ISE Mercury, LLC and company agreement for the Company. Sections 3(a)(2) and 3(a)(3) in this Executive
14 Section 11.1(b) of the CAT NMS Plan.
International Securities Exchange, LLC have been Summary should be instead to Sections II.A.1.(2)
renamed Nasdaq GEMX, LLC, Nasdaq MRX, LLC, 15 Id. and II.A.1.(3), respectively.
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![Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices 25839
the CAT. Industry Members with lower Industry Members other than Equity The Commission believes that the
levels of message traffic will pay a lower ATSs. (See Section 3(a)(3)(B) [sic] proposed funding model reflects a
fee and Industry Members with higher below) reasonable exercise of the Participants’
levels of message traffic will pay a • Quarterly Invoices. Industry funding authority to recover the
higher fee. (See Section 3(a)(2)(B) [sic] Members will be billed quarterly for Participants’ costs related to the CAT.
below) CAT Fees, with the invoices payable The CAT is a regulatory facility jointly
• Execution Venue Fees. Each Equity within 30 days. The quarterly invoices owned by the Participants and . . . the
Execution Venue will be placed in one will identify within which tier the Exchange Act specifically permits the
of two tiers of fixed fees based on Industry Member falls. (See Section Participants to charge their members
market share, and each Options 3(a)(3)(C) [sic] below) fees to fund their self-regulatory
Execution Venue will be placed in one • Centralized Payment. Each Industry obligations. The Commission further
of two tiers of fixed fees based on Member will receive from the Company believes that the proposed funding
market share. Equity Execution Venue one invoice for its applicable CAT Fees, model is designed to impose fees
market share will be determined by not separate invoices from each reasonably related to the Participants’
calculating each Equity Execution Participant of which it is a member. The self-regulatory obligations because the
Venue’s proportion of the total volume Industry Members will pay its CAT Fees fees would be directly associated with
of NMS Stock and OTC Equity shares to the Company via the centralized the costs of establishing and
reported by all Equity Execution Venues system for the collection of CAT Fees maintaining the CAT, and not unrelated
during the relevant time period. established by the Operating Committee. SRO services.20
Similarly, market share for Options (See Section 3(a)(3)(C) [sic] below) Accordingly, the funding model
Execution Venues will be determined by • Billing Commencement. Industry imposes fees on both Participants and
calculating each Options Execution Members will begin to receive invoices Industry Members.
Venue’s proportion of the total volume for CAT Fees as promptly as possible In addition, as discussed in Appendix
of Listed Options contracts reported by following the establishment of a billing C of the CAT NMS Plan, the Operating
all Options Execution Venues during mechanism. Bats will issue a Regulatory Committee considered the advantages
the relevant time period. Equity Circular to its members when the billing and disadvantages of a variety of
Execution Venues with a larger market mechanism is established, specifying alternative funding and cost allocation
share will pay a larger CAT Fee than the date when such invoicing of models before selecting the proposed
Equity Execution Venues with a smaller Industry Members will commence. (See model.21 After analyzing the various
market share. Similarly, Options Section 3(a)(2)(G) [sic] below) alternatives, the Operating Committee
Execution Venues with a larger market determined that the proposed tiered,
share will pay a larger CAT Fee than (2) Description of the CAT Funding
fixed fee funding model provides a
Options Execution Venues with a Model
variety of advantages in comparison to
smaller market share. (See Section Article XI of the CAT NMS Plan the alternatives. First, the fixed fee
3(a)(2)(C) [sic] below) requires the Operating Committee to model, as opposed to a variable fee
• Cost Allocation. For the reasons approve the operating budget, including model, provides transparency, ease of
discussed below, in designing the projected costs of developing and calculation, ease of billing and other
model, the Operating Committee operating the CAT for the upcoming administrative functions, and
determined that 75 percent of total costs year. As set forth in Article XI of the predictability of a fixed fee. Such factors
recovered would be allocated to CAT NMS Plan, the CAT NMS Plan are crucial to estimating a reliable
Industry Members (other than Execution requires a bifurcated funding model, revenue stream for the Company and for
Venue ATSs) and 25 percent would be where costs associated with building permitting CAT Reporters to reasonably
allocated to Execution Venues. In and operating the Central Repository predict their payment obligations for
addition, the Operating Committee would be borne by (1) Participants and budgeting purposes.22 Additionally, a
determined to allocate 75 percent of Industry Members that are Execution strictly variable or metered funding
Execution Venue costs recovered to Venues through fixed tier fees based on model based on message volume would
Equity Execution Venues and 25 percent market share, and (2) Industry Members be far more likely to affect market
to Options Execution Venues. (See (other than Execution Venue ATSs) behavior and place an inappropriate
Section 3(a)(2)(D) [sic] below) through fixed tier fees based on message burden on competition. Moreover, as
• Comparability of Fees. The CAT traffic. In its order approving the CAT the SEC noted in approving the CAT
funding model requires that the CAT NMS Plan, the Commission determined NMS Plan, ‘‘[t]he Participants also have
Fees charged to the CAT Reporters with that the proposed funding model was offered a reasonable basis for
the most CAT-related activity (measured ‘‘reasonable’’ 17 and ‘‘reflects a establishing a funding model based on
by market share and/or message traffic, reasonable exercise of the Participants’ broad tiers, in that it be may be easier
as applicable) are generally comparable funding authority to recover the to implement.’’ 23
(where, for these comparability Participants’ costs related to the
purposes, the tiered fee structure takes CAT.’’ 18 20 Id. at 84794.
into consideration affiliations between More specifically, the Commission 21 Section B.7, Appendix C of the CAT NMS Plan,
or among CAT Reporters, whether stated in approving the CAT NMS Plan Approval Order at 85006.
Execution Venues and/or Industry that ‘‘[t]he Commission believes that the 22 In choosing a tiered fee structure, the SROs
asabaliauskas on DSKBBXCHB2PROD with NOTICES
Members). (See Section 3(a)(2)(F) [sic] concluded that the variety of benefits offered by a
proposed funding model is reasonably tiered fee structure, discussed above, outweighed
below) designed to allocate the costs of the CAT the fact that Industry Members in any particular tier
(B) CAT Fees for Industry Members between the Participants and Industry would pay different rates per message traffic order
Members.’’ 19 The Commission further event (e.g., an Industry Member with the largest
• Fee Schedule. The quarterly CAT noted the following: amount of message traffic in one tier would pay a
Fees for each tier for Industry Members smaller amount per order event than an Industry
Member in the same tier with the least amount of
are set forth in the two fee schedules in 17 Approval Order at 84796. message traffic). Such variation is the natural result
the Consolidated Audit Trail Funding 18 Id. at 84794. of a tiered fee structure.
Fees, one for Equity ATSs and one for 19 Id. at 84795. 23 Approval Order at 84796.
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In addition, multiple reviews of significant cost drivers for the CAT.29 Operating Committee determining fees
current broker-dealer order and trading Thus, the CAT NMS Plan provides that applicable to its own members—the
data submitted under existing reporting the fees payable by Industry Members Participants. First, the Company will be
requirements showed a wide range in (other than Execution Venue ATSs) will operated on a ‘‘break-even’’ basis, with
activity among broker-dealers, with a be based on the message traffic fees imposed to cover costs and an
number of broker-dealers submitting generated by such Industry Member.30 appropriate reserve. Any surpluses will
fewer than 1,000 orders per month and The CAT NMS Plan provides that the be treated as an operational reserve to
other broker-dealers submitting millions Operating Committee will use different offset future fees and will not be
and even billions of orders in the same criteria to establish fees for Execution distributed to the Participants as
period. Accordingly, the CAT NMS Plan Venues and non-Execution Venues due profits.35 To ensure that the
includes a tiered approach to fees. The to the fundamental differences between Participants’ operation of the CAT will
tiered approach helps ensure that fees the two types of entities. In particular, not contribute to the funding of their
are equitably allocated among similarly the CAT NMS Plan provides that fees other operations, Section 11.1(c) of the
situated CAT Reporters and furthers the charged to CAT Reporters that are CAT NMS Plan specifically states that
goal of lessening the impact on smaller Execution Venues will be based on the ‘‘[a]ny surplus of the Company’s
firms.24 The self-regulatory level of market share and that costs revenues over its expenses shall be
organizations considered several charged to Industry Members (other treated as an operational reserve to
approaches to developing a tiered than Execution Venue ATSs) will be offset future fees.’’ In addition, as set
model, including defining fee tiers based upon message traffic.31 Because forth in Article VIII of the CAT NMS
based on such factors as size of firm, most Participant message traffic consists Plan, the Company ‘‘intends to operate
message traffic or trading dollar volume. of quotations, and Participants usually in a manner such that it qualifies as a
After analyzing the alternatives, it was disseminate quotations in all ‘business league’ within the meaning of
concluded that the tiering should be instruments they trade, regardless of Section 501(c)(6) of the [Internal
based on the relative impact of CAT execution volume, Execution Venues Revenue] Code.’’ To qualify as a
Reporters on the CAT System. that are Participants generally business league, an organization must
Accordingly, the CAT NMS Plan disseminate similar amounts of message ‘‘not [be] organized for profit and no
contemplates that costs will be allocated traffic. Accordingly, basing fees for part of the net earnings of [the
across the CAT Reporters on a tiered Execution Venues on message traffic organization can] inure[] to the benefit
basis to allocate costs to those CAT would not provide the same degree of of any private shareholder or
Reporters that contribute more to the differentiation among Execution Venues individual.’’ 36 As the SEC stated when
costs of creating, implementing and that it does among Industry Members approving the CAT NMS Plan, ‘‘the
maintaining the CAT.25 The fees to be (other than Execution Venue ATSs). In Commission believes that the
assessed at each tier are calculated so as contrast, execution volume more Company’s application for Section
to recoup a proportion of costs accurately delineates the different levels 501(c)(6) business league status
appropriate to the message traffic or of trading activity of Execution addresses issues raised by commenters
market share (as applicable) from CAT Venues.32 about the Plan’s proposed allocation of
Reporters in each tier. Therefore, The CAT NMS Plan’s funding model profit and loss by mitigating concerns
Industry Members generating the most also is structured to avoid a ‘‘reduction that the Company’s earnings could be
message traffic will be in the higher in market quality.’’ 33 The tiered, fixed used to benefit individual
tiers, and therefore be charged a higher fee funding model is designed to limit Participants.’’ 37
the disincentives to providing liquidity Finally, by adopting a CAT-specific
fee. Industry Members with lower levels
to the market. For example, the fee, the Participants will be fully
of message traffic will be in lower tiers
Participants expect that a firm that had transparent regarding the costs of the
and will be assessed a smaller fee for the
a large volume of quotes would likely be CAT. Charging a general regulatory fee,
CAT.26 Correspondingly, Execution
categorized in one of the upper tiers, which would be used to cover CAT
Venues with the highest market share
and would not be assessed a fee for this costs as well as other regulatory costs,
will be in the top tier, and therefore will
traffic directly as they would under a would be less transparent than the
be charged a higher fee. Execution
more directly metered model. In selected approach of charging a fee
Venues with a lower market share will
contrast, strictly variable or metered designated to cover CAT costs only.
be in the lower tier and will be assessed
funding models based on message A full description of the funding
a smaller fee for the CAT.27 volume were far more likely to affect
The Commission also noted in model is set forth below. This
market behavior. In approving the CAT description includes the framework for
approving the CAT NMS Plan that
NMS Plan, the SEC stated that ‘‘[t]he the funding model as set forth in the
‘‘[t]he Participants have offered a
Participants also offered a reasonable CAT NMS Plan, as well as the details as
credible justification for using different
basis for establishing a funding model to how the funding model will be
criteria to charge Execution Venues
based on broad tiers, in that it may be applied in practice, including the
(market share) and Industry Members
. . . less likely to have an incremental number of fee tiers and the applicable
(message traffic)’’ 28 in the CAT funding deterrent effect on liquidity
model. While there are multiple factors fees for each tier. Bats notes that the
provision.’’ 34 complete funding model is described
that contribute to the cost of building, The CAT NMS Plan is structured to
maintaining and using the CAT, below, including those fees that are to
asabaliauskas on DSKBBXCHB2PROD with NOTICES
avoid potential conflicts raised by the be paid by the Participants. The
processing and storage of incoming
message traffic is one of the most proposed Consolidated Audit Trail
29 Section B.7, Appendix C of the CAT NMS Plan,
Funding Fees, however, do not apply to
Approval Order at 85005.
24 Section B.7, Appendix C of the CAT NMS Plan, 30 Section 11.3(b) of the CAT NMS Plan. the Participants; the proposed
Approval Order at 85006. 31 Section 11.2(c) of the CAT NMS Plan. Consolidated Audit Trail Funding Fees
25 Approval Order at 85005. 32 Section B.7, Appendix C of the CAT NMS Plan,
26 Id. Approval Order at 85005. 35 Id.
at 84792.
27 Id. 33 Section 11.2(e) of the CAT NMS Plan. 36 26U.S.C. 501(c)(6).
28 Id. at 84796. 34 Approval Order at 84796. 37 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 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 order modifications (e.g., order updates, Rule 300 of Regulation ATS) that
tiers based on message traffic, the order splits, partial cancels). operates pursuant to Rule 301 of
Operating Committee determined to Furthermore, prior to the start of CAT Regulation ATS (excluding any such
define the term ‘‘message traffic’’ reporting, quotes would be comprised of ATS that does not execute orders).’’ 41
separately for the period before the information readily available to the The Participants determined that
commencement of CAT reporting and exchanges and FINRA, such as the total ATSs should be included within the
for the period after the start of CAT number of historical equity and equity definition of Execution Venue. Given
reporting. The different definition for options quotes received and originated the similarity between the activity of
message traffic is necessary as there will by a member of an exchange or FINRA exchanges and ATSs, both of which
be no Reportable Events as defined in over the prior three-month period. meet the definition of an ‘‘exchange’’ as
the Plan, prior to the commencement of After an Industry Member begins set forth in the Exchange Act and the
CAT reporting. Accordingly, prior to the reporting to the CAT, ‘‘message traffic’’ fact that the similar trading models
start of CAT reporting, ‘‘message traffic’’ will be calculated based on the Industry would have similar anticipated burdens
will be comprised of historical equity Member’s Reportable Events reported to on the CAT, the Participants determined
and equity options orders, cancels and the CAT as will be defined in the that ATSs should be treated in the same
quotes provided by each exchange and Technical Specifications.40 manner as the exchanges for the
FINRA over the previous three The Operating Committee has purposes of determining the level of fees
months.38 Prior to the start of CAT determined to calculate fee tiers every associated with the CAT.42
reporting, orders would be comprised of three months, on a calendar quarter Given the differences between
the total number of equity and equity basis, based on message traffic from the Execution Venues that trade NMS
options orders received and originated prior three months. Based on its Stocks and/or OTC Equity Securities
by a member of an exchange or FINRA analysis of historical data, the Operating and Execution Venues that trade Listed
over the previous three-month period, Committee believes that calculating tiers Options, Section 11.3(a) addresses
including principal orders, cancel/ based on three months of data will Execution Venues that trade NMS
replace orders, market maker orders provide the best balance between Stocks and/or OTC Equity Securities
originated by a member of an exchange, reflecting changes in activity by separately from Execution Venues that
and reserve (iceberg) orders as well as Industry Members while still providing trade Listed Options. Equity and
order routes and executions originated predictability in the tiering for Industry Options Execution Venues are treated
by a member of FINRA, and excluding Members. Because fee tiers will be separately for two reasons. First, the
order rejects and implied orders.39 In calculated based on message traffic from differing quoting behavior of Equity and
addition, prior to the start of CAT the prior three months, the Operating Options Execution Venues makes
reporting, cancels would be comprised Committee will begin calculating comparison of activity between
of the total number of equity and equity message traffic based on an Industry Execution Venues difficult. Second,
option cancels received and originated Member’s Reportable Events reported to Execution Venue tiers are calculated
by a member of an exchange or FINRA the CAT once the Industry Member has based on market share of share volume,
over a three-month period, excluding been reporting to the CAT for three and it is therefore difficult to compare
months. Prior to that, fee tiers will be market share between asset classes (i.e.,
38 The SEC approved exemptive relief permitting calculated as discussed above with equity shares versus options contracts).
Options Market Maker quotes to be reported to the regard to the period prior to CAT Discussed below is how the funding
Central Repository by the relevant Options model treats the two types of Execution
Exchange in lieu of requiring that such reporting be
reporting.
done by both the Options Exchange and the Options Venues.
(C) Execution Venue Tiering
Market Maker, as required by Rule 613 of
Regulation NMS. See Securities Exchange Act Under Section 11.3(a) of the CAT (I) NMS Stocks and OTC Equity
Release No. 77265 (Mar. 1, 2017 [sic], 81 FR 11856 NMS Plan, the Operating Committee is Securities
(Mar. 7, 2016). This exemption applies to Options
Market Maker quotes for CAT reporting purposes required to establish fixed fees payable Section 11.3(a)(i) of the CAT NMS
only. Therefore, notwithstanding the reporting by Execution Venues. Section 1.1 of the Plan states that each Execution Venue
that (i) executes transactions or, (ii) in
asabaliauskas on DSKBBXCHB2PROD with NOTICES
exemption provided for Options Market Maker CAT NMS Plan defines an Execution
quotes, Options Market Maker quotes will be Venue as ‘‘a Participant or an alternative the case of a national securities
included in the calculation of total message traffic
for Options Market Makers for purposes of tiering trading system (‘‘ATS’’) (as defined in association, has trades reported by its
under the CAT funding model both prior to CAT
reporting and once CAT reporting commences. 40 If an Industry Member (other than an Execution 41 Although FINRA does not operate an execution
39 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 42 Section B.7, Appendix C of the CAT NMS Plan,
CAT. fee obligation. Approval Order at 85005.
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members to its trade reporting facility or Execution Venues. The Operating activity, and determined that it was
facilities for reporting transactions Committee determined to establish two simpler and more appropriate to have
effected otherwise than on an exchange, tiers for Equity Execution Venues, rather fewer, rather than more, Execution
in NMS Stocks or OTC Equity Securities than a larger number of tiers as Venue tiers to distinguish between
will pay a fixed fee depending on the established for non-Execution Venue Execution Venues.
market share of that Execution Venue in Industry Members, because the two tiers The percentage of costs recovered by
NMS Stocks and OTC Equity Securities, were sufficient to distinguish between each Equity Execution Venue tier will
with the Operating Committee the smaller number of Equity Execution be determined by predefined percentage
establishing at least two and not more Venues based on market share. allocations (the ‘‘Equity Execution
than five tiers of fixed fees, based on an Furthermore, the incorporation of Venue Recovery Allocation’’). In
Execution Venue’s NMS Stocks and additional Equity Execution Venue tiers determining the fixed percentage
OTC Equity Securities market share. For would result in significantly higher fees allocation of costs recovered for each
these purposes, market share for for Tier 1 Equity Execution Venues and
tier, the Operating Committee
Execution Venues that execute diminish comparability between
considered the impact of CAT Reporter
transactions will be calculated by share Execution Venues and Industry
market share activity on the CAT
volume, and market share for a national Members.
Each Equity Execution Venue will be System as well as the distribution of
securities association that has trades
ranked by market share and tiered by total market volume across Equity
reported by its members to its trade
predefined Execution Venue Execution Venues while seeking to
reporting facility or facilities for
percentages, (the ‘‘Equity Execution maintain comparable fees among the
reporting transactions effected
Venue Percentages’’). In determining the largest CAT Reporters. Accordingly,
otherwise than on an exchange in NMS
fixed percentage of Equity Execution following the determination of the
Stocks or OTC Equity Securities will be
calculated based on share volume of Venues in each tier, the Operating percentage of Execution Venues in each
trades reported, provided, however, that Committee looked at historical market tier, the Operating Committee identified
the share volume reported to such share of share volume for execution the percentage of total market volume
national securities association by an venues. Equities Execution Venue for each tier based on the historical
Execution Venue shall not be included market share of share volume were market share upon which Execution
in the calculation of such national sourced from market statistics made Venues had been initially ranked.
security association’s market share. publicly-available by Bats Global Taking this into account along with the
In accordance with Section 11.3(a)(i) Markets, Inc. (‘‘Bats’’). ATS market resulting percentage of total recovery,
of the CAT NMS Plan, the Operating share of share volume was sourced from the percentage allocation of costs
Committee approved a tiered fee market statistics made publicly- recovered for each tier were assigned,
structure for Equity Execution Venues available by FINRA. FINRA trading [sic] allocating higher percentages of
and Option Execution Venues. In reporting facility (‘‘TRF’’) market share recovery to the tier with a higher level
determining the Equity Execution of share volume was sourced from of market share while avoiding any
Venue Tiers, the Operating Committee market statistics made publicly inappropriate burden on competition.
considered the funding principles set available by Bats. As indicated by Furthermore, due to the similar levels of
forth in Section 11.2 of the CAT NMS FINRA, ATSs accounted for 37.80% of impact on the CAT System across
Plan, seeking to create funding tiers that the share volume across the TRFs Execution Venues, there is less variation
take into account the relative impact on during the recent tiering period. A in CAT Fees between the highest and
system resources of different Equity 37.80/62.20 split was applied to the lowest of tiers for Execution Venues.
Execution Venues, and that establish ATS and non-ATS breakdown of FINRA Furthermore, by using percentages of
comparable fees among the CAT market share, with FINRA tiered based Equity Execution Venues and costs
Reporters with the most Reportable only on the non-ATS portion of its TRF recovered per tier, the Operating
Events. Each Equity Execution Venue market share of share volume. Committee sought to include stability
will be placed into one of two tiers of Based on this, the Operating and elasticity within the funding model,
fixed fees, based on the Execution Committee considered the distribution allowing the funding model to respond
Venue’s NMS Stocks and OTC Equity of Execution Venues, and grouped to changes in either the total number of
Securities market share. In choosing two together Execution Venues with similar Equity Execution Venues or changes in
tiers, the Operating Committee levels of market share of share volume. market share.
performed an analysis similar to that In doing so, the Participants considered Based on this analysis, the Operating
discussed above with regard to the non- that, as previously noted, Execution Committee approved the following
Execution Venue Industry Members to Venues in many cases have similar Equity Execution Venue Percentages
determine the number of tiers for Equity levels of message traffic due to quoting and Recovery Allocations:
Percentage Percentage Percentage
of Equity of Execution
Equity Execution Venue tier of total
Execution Venue recovery
Venues Recovery
Tier 1 ............................................................................................................................................ 25.00 26.00 6.50
asabaliauskas on DSKBBXCHB2PROD with NOTICES
Tier 2 ............................................................................................................................................ 75.00 49.00 12.25
Total ...................................................................................................................................... 100 75 18.75
The following table exhibits the 2 Equity Execution Venues. In to help differentiate between Equity
relative separation of market share of reviewing the table, note that while this Execution Venue tiers, the proposed
share volume between Tier 1 and Tier division was referenced as a data point funding model is directly driven not by
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![Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices 25845
market share thresholds, but rather by Committee considered the funding Committee analyzed the historical and
fixed percentages of Equity Execution principles set forth in Section 11.2 of publicly available market share of
Venues across tiers to account for the CAT NMS Plan, seeking to create Options Execution Venues to group
fluctuating levels of market share across funding tiers that take into account the Options Execution Venues with similar
time. Actual market share in any tier relative impact on system resources of market shares across the tiers. Options
will vary based on the actual market different Options Execution Venues, Execution Venue market share of share
activity in a given measurement period, and that establish comparable fees volume were sourced from market
as well as the number of Equity among the CAT Reporters with the most statistics made publicly-available by
Execution Venues included in the Reportable Events. Each Options Bats. The process for developing the
measurement period. The Equity Execution Venue will be placed into one Options Execution Venue Percentages
Execution Venue Percentages and of two tiers of fixed fees, based on the was the same as discussed above with
Equity Execution Venue Recovery Execution Venue’s Listed Options regard to Equity Execution Venues.
Allocation for each tier will remain market share. In choosing two tiers, the The percentage of costs recovered by
fixed with each Equity Execution Venue Operating Committee performed an each Options Execution Venue tier will
tier to be reassigned periodically, as analysis similar to that discussed above be determined by predefined percentage
described below in Section 3(a)(1)(I) with regard to Industry Members (other allocations (the ‘‘Options Execution
[sic]. than Execution Venue ATSs) to Venue Recovery Allocation’’). In
determine the number of tiers for determining the fixed percentage
Equity market Options Execution Venues. The allocation of costs recovered for each
Equity Execution Venue tier share of share Operating Committee determined to tier, the Operating Committee
volume
establish two tiers for Options considered the impact of CAT Reporter
Tier 1 .................................... ≥1 Execution Venues, rather than a larger market share activity on the CAT
Tier 2 .................................... <1 number of tiers as established for System as well as the distribution of
Industry Members (other than Execution total market volume across Options
(II) Listed Options Venue ATSs), because the two tiers Execution Venues while seeking to
were sufficient to distinguish between maintain comparable fees among the
Section 11.3(a)(ii) of the CAT NMS the smaller number of Options largest CAT Reporters. Furthermore, by
Plan states that each Execution Venue Execution Venues based on market using percentages of Options Execution
that executes transactions in Listed share. Furthermore, due to the smaller Venues and costs recovered per tier, the
Options will pay a fixed fee depending number of Options Execution Venues, Operating Committee sought to include
on the Listed Options market share of the incorporation of additional Options stability and elasticity within the
that Execution Venue, with the Execution Venue tiers would result in funding model, allowing the funding
Operating Committee establishing at significantly higher fees for Tier 1 model to respond to changes in either
least two and no more than five tiers of Options Execution Venues and reduce the total number of Options Execution
fixed fees, based on an Execution comparability between Execution Venues or changes in market share. The
Venue’s Listed Options market share. Venues and Industry Members. process for developing the Options
For these purposes, market share will be Each Options Execution Venue will Execution Venue Recovery Allocation
calculated by contract volume. be ranked by market share and tiered by was the same as discussed above with
In accordance with Section 11.3(a)(ii) predefined Execution Venue regard to Equity Execution Venues.
of the CAT NMS Plan, the Operating percentages, (the ‘‘Options Execution Based on this analysis, the Operating
Committee approved a tiered fee Venue Percentages’’). To determine the Committee approved the following
structure for Options Execution Venues. fixed percentage of Options Execution Options Execution Venue Percentages
In determining the tiers, the Operating Venues in each tier, the Operating and Recovery Allocations:
Percentage Percentage
of Options of Execution Percentage
Options Execution Venue tier of total
Execution Venue recovery
Venues Recovery
Tier 1 ............................................................................................................................................ 75.00 20.00 5.00
Tier 2 ............................................................................................................................................ 25.00 5.00 1.25
Total ...................................................................................................................................... 100 25 6.25
The following table exhibits the will vary based on the actual market
relative separation of market share of activity in a given measurement period,
share volume between Tier 1 and Tier as well as the number of Options Options
2 Options Execution Venues. In Execution Venues included in the market share
Options Execution Venue tier of share
reviewing the table, note that while this measurement period. The Options volume
division was referenced as a data point Execution Venue Percentages and
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to help differentiate between Options Equity Execution Venue Recovery Tier 1 .................................... ≥1
Execution Venue tiers, the proposed Allocation for each tier will remain Tier 2 .................................... <1
funding model is directly driven, not by fixed with each Options Execution
market share thresholds, but rather by Venue tier to be reassigned periodically, (III) Market Share/Tier Assignments
fixed percentages of Options Execution as described below in Section 3(a)(1)(I)
Venues across tiers to account for [sic]. The Operating Committee determined
fluctuating levels of market share across that, prior to the start of CAT reporting,
time. Actual market share in any tier market share for Execution Venues
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![25848 Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices
Operating Committee also determined The Operating Committee has fees assumes 53 Equity Execution
that the fees for Execution Venue calculated the schedule of effective fees Venues, 15 Options Execution Venues
complexes should be comparable to for Industry Members (other than and 1,631 Industry Members (other than
those of Industry Member complexes. Execution Venue ATSs) and Execution Execution Venue ATSs) as of January
The difference in the fees reflects this Venues in the following manner. Note 2017.
decision to recognize affiliations. that the calculation of CAT Reporter
CALCULATION OF ANNUAL TIER FEES FOR INDUSTRY MEMBERS
[‘‘IM’’]
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
Estimated
number of
Industry Member tier Industry
Members
Tier 1 .............................................................................................................................................................................................. 8
Tier 2 .............................................................................................................................................................................................. 41
Tier 3 .............................................................................................................................................................................................. 35
Tier 4 .............................................................................................................................................................................................. 75
Tier 5 .............................................................................................................................................................................................. 59
Tier 6 .............................................................................................................................................................................................. 65
Tier 7 .............................................................................................................................................................................................. 285
Tier 8 .............................................................................................................................................................................................. 328
Tier 9 .............................................................................................................................................................................................. 735
Total ........................................................................................................................................................................................ 1,631
BILLING CODE 8011–01–P
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![25852 Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices
EXECUTION VENUE COMPLEXES
Total fees
Listing of Equity Execution Listing of Options Execution
Execution Venue complex by EV
Venue tiers Venue tier complex
Execution Venue Complex 1 .................................................... • Tier 1 (x2) ............................ • Tier 1 (x4) ............................ $1,900,962
• Tier 2 (x1) ............................ • Tier 2 (x2).
Execution Venue Complex 2 .................................................... • Tier 1 (x2) ............................ • Tier 1 (x2) ............................ 1,863,801
• Tier 2 (x1).
Execution Venue Complex 3 .................................................... • Tier 1 (x2) ............................ • Tier 1 (x2) ............................ 1,278,447
• Tier 2 (x2).
INDUSTRY MEMBER COMPLEXES
Listing of Industry Member Total fees by
Industry Member complex Listing of ATS tiers
tiers IM complex
Industry Member Complex 1 .................................................... • Tier 1 (x2) ............................ • Tier 2 (x1) ............................ $963,300
Industry Member Complex 2 .................................................... • Tier 1 (x1) ............................ • Tier 2 (x3) ............................ 949,674
• Tier 4 (x1).
Industry Member Complex 3 .................................................... • Tier 1 (x1) ............................ • Tier 2 (x1) ............................ 883,888
• Tier 2 (x1).
Industry Member Complex 4 .................................................... • Tier 1 (x1) ............................ • N/A ..................................... 808,472
• Tier 2 (x1).
• Tier 4 (x1).
Industry Member Complex 5 .................................................... • Tier 2 (x1) ............................ • Tier 2 (x1) ............................ 796,595
• Tier 3 (x1).
• Tier 4 (x1).
• Tier 7 (x1).
(G) Billing Onset changes to such fee schedule that it Reporters and the Company.52 To the
Under Section 11.1(c) of the CAT deems appropriate. The Operating extent that the Operating Committee
NMS Plan, to fund the development and Committee is authorized to review such approves changes to the number of tiers
implementation of the CAT, the fee schedule on a more regular basis, but in the funding model or the fees
Company shall time the imposition and shall not make any changes on more assigned to each tier, then Bats will file
collection of all fees on Participants and than a semi-annual basis unless, such changes with the SEC pursuant to
Industry Members in a manner pursuant to a Supermajority Vote, the Section 19(b) of the Exchange Act, and
reasonably related to the timing when Operating Committee concludes that any such changes will become effective
the Company expects to incur such such change is necessary for the in accordance with the requirements of
development and implementation costs. adequate funding of the Company.’’ Section 19(b).
The Company is currently incurring With such reviews, the Operating (I) Initial and Periodic Tier
such development and implementation Committee will review the distribution Reassignments
costs and will continue to do so prior of Industry Members and Execution
Venues across tiers, and make any The Operating Committee has
to the commencement of CAT reporting determined to calculate fee tiers every
and thereafter. For example, the Plan updates to the percentage of CAT
three months based on market share or
Processor has required up-front Reporters allocated to each tier as may
message traffic, as applicable, from the
payments to begin building the CAT. In be necessary. In addition, the reviews
prior three months. For the initial tier
addition, the Company continues to will evaluate the estimated ongoing
assignments, the Company will
incur consultant and legal expenses on CAT costs and the level of the operating
calculate the relevant tier for each CAT
an on-going basis to implement the reserve. To the extent that the total CAT Reporter using the three months of data
CAT. Accordingly, the Operating costs decrease, the fees would be prior to the commencement date. As
Committee determined that all CAT adjusted downward, and, to the extent with the initial tier assignment, for the
Reporters, including both Industry that the total CAT costs increase, the tri-monthly reassignments, the
Members and Execution Venues fees would be adjusted upward.51 Company will calculate the relevant tier
(including Participants), would begin to Furthermore, any surplus of the using the three months of data prior to
be invoiced as promptly as possible Company’s revenues over its expenses is the relevant tri-monthly date. Bats notes
following the establishment of a billing to be included within the operational that any movement of CAT Reporters
mechanism. Bats will issue a Regulatory reserve to offset future fees. The between tiers will not change the
Circular to its members when the billing limitations on more frequent changes to criteria for each tier or the fee amount
asabaliauskas on DSKBBXCHB2PROD with NOTICES
mechanism is established, specifying the fee, however, are intended to corresponding to each tier.
the date when such invoicing of provide budgeting certainty for the CAT In performing the tri-monthly
Industry Members will commence. reassignments, Bats notes that the
(H) Changes to Fee Levels and Tiers
51 The CAT Fees are designed to recover the costs
percentage of CAT Reporters in each
associated with the CAT. Accordingly, CAT Fees assigned tier is relative. Therefore, a
Section 11.3(d) of the CAT NMS Plan would not be affected by increases or decreases in
other non-CAT expenses incurred by the SROs, CAT Reporter’s assigned tier will
states that ‘‘[t]he Operating Committee such as any changes in costs related to the
shall review such fee schedule on at retirement of existing regulatory systems, such as 52 Section B.7, Appendix C of the CAT NMS Plan,
least an annual basis and shall make any OATS. Approval Order at 85006.
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![25856 Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices
available for Web site viewing and notices and orders issued pursuant to the same as those adopted by BATS and
printing in the Commission’s Public proposed Rule 9560. The proposed rule NASDAQ, with the following
Reference Room, 100 F Street NE., change is available on the Exchange’s exceptions discussed below: (1)
Washington, DC 20549, on official Web site at www.nyse.com, at the Conforming references to reflect the
business days between the hours of principal office of the Exchange, and at Exchange’s membership; and (2) the call
10:00 a.m. and 3:00 p.m. Copies of such the Commission’s Public Reference for review process in proposed Rule
filing will also be available for Room. 9560(f). The Exchange believes that
inspection and copying at the principal having consistent rules for issuing a
II. Self-Regulatory Organization’s
office of the Exchange. All comments cease and desist order on an expedited
Statement of the Purpose of, and
received will be posted without change; basis as other self-regulatory
Statutory Basis for, the Proposed Rule
the Commission does not edit personal organizations (‘‘SROs’’) to halt certain
Change
identifying information from disruptive and manipulative quoting
submissions. You should submit only In its filing with the Commission, the and trading activity would enhance the
information that you wish to make self-regulatory organization included Exchange’s ability to protect investors
available publicly. All submissions statements concerning the purpose of, and market integrity.
should refer to File Number SR– and basis for, the proposed rule change
and discussed any comments it received Background
BatsBYX–2017–11 and should be
submitted on or before June 26, 2017. on the proposed rule change. The text As a national securities exchange
of those statements may be examined at registered pursuant to Section 6 of the
For the Commission, by the Division of
Trading and Markets, pursuant to delegated the places specified in Item IV below. Act, the Exchange is required to be
authority.61 The Exchange has prepared summaries, organized and to have the capacity to
Eduardo A. Aleman, set forth in sections A, B, and C below, enforce compliance by its member
Assistant Secretary. of the most significant parts of such organizations and persons associated
statements. with its member organizations, with the
[FR Doc. 2017–11504 Filed 6–2–17; 8:45 am]
Act, the rules and regulations
BILLING CODE 8011–01–P A. Self-Regulatory Organization’s thereunder, and the Exchange’s Rules.4
Statement of the Purpose of, and Further, the Exchange’s Rules are
Statutory Basis for, the Proposed Rule required to be ‘‘designed to prevent
SECURITIES AND EXCHANGE Change
COMMISSION fraudulent and manipulative acts and
1. Purpose practices, to promote just and equitable
[Release No. 34–80807; File No. SR–NYSE– principles of trade . . . and, in general,
2017–21] The Exchange proposes (1) a new
Rule 5220 that defines and prohibits to protect investors and the public
two types of disruptive quoting and interest.’’ 5
Self-Regulatory Organizations; New In fulfilling these requirements, the
York Stock Exchange LLC; Notice of trading activity on the Exchange; (2) a
new Rule 9560 governing supplemental Exchange has developed a
Filing and Immediate Effectiveness of comprehensive regulatory program that
Proposed Rule Change To Adopt Rules expedited suspension proceedings; and
(3) amendments to Rule 8313 (Release of includes automated surveillance of
5220 and 9560 and Amend Rule 8313
Disciplinary Complaints, Decisions and trading activity operated directly by
May 30, 2017. Other Information) to permit release to Exchange staff. When disruptive and
Pursuant to Section 19(b)(1) of the the public of suspension notices and potentially manipulative or improper
Securities Exchange Act of 1934 orders issued pursuant to proposed Rule quoting and trading activity is
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 9560. identified, the Exchange conducts an
notice is hereby given that on May 17, The proposed rule change is based on investigation into the activity and
2017, New York Stock Exchange LLC rules recently adopted by Bats BZX requests documents and information. To
(‘‘NYSE’’ or ‘‘Exchange’’) filed with the Exchange, Inc., formerly known as the extent violations of the Act, the
Securities and Exchange Commission BATS Exchange, Inc. (‘‘BATS’’), and rules and regulations thereunder, or
(‘‘SEC’’ or ‘‘Commission’’) the proposed The Nasdaq Stock Market LLC Exchange Rules are identified, the
rule change as described in Items I, II, (‘‘NASDAQ’’).3 The proposed rules are Exchange will commence disciplinary
and III below, which Items have been proceedings, which could result in,
prepared by the Exchange. The 3 On February 18, 2016, the SEC approved a among other things, a censure, a
Commission is publishing this notice to proposed rule change filed by BATS to adopt new requirement to take certain remedial
solicit comments on the proposed rule BATS Rule 12.15, which prohibits certain types of actions, one or more restrictions on
disruptive quoting and trading activities, and BATS future business activities, a monetary
change from interested persons. Rule 8.17, which permits BATS to conduct a new
expedited suspension proceeding when it believes fine, or a temporary or permanent ban
I. Self-Regulatory Organization’s from the securities industry.
BATS Rule 12.15 has been violated. See Securities
Statement of the Terms of Substance of Exchange Act Release No. 77171 (February 18, The process described above, from the
the Proposed Rule Change 2016), 81 FR 9017 (February 23, 2016) (SR–BATS– identification of disruptive and
2015–101) (‘‘BATS Approval Order’’); see also
The Exchange proposes (1) a new Securities Exchange Act Release No. 77606 (April
Rule 5220 that defines and prohibits 13, 2016), 81 FR 23026 (April 19, 2016) (SR– (May 25, 2016), 81 FR 35081 (June 1, 2016) (SR–
two types of disruptive quoting and BatsEDGA–2016–03) (adopting identical rules for NASDAQ–2016–074). NASDAQ has also extended
the rule to other exchanges. See, e.g., Securities
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trading activity on the Exchange; (2) a Bats EDGA Exchange, Inc.); Securities Exchange Act
Release No. 77602 (April 13, 2016), 81 FR 23046 Exchange Act Release No. 78208 (June 30, 2016), 81
new Rule 9560 governing supplemental (April 19, 2016) (SR–BatsBYX–2016–03) (adopting FR 44366 (July 7, 2016) (SR–NASDAQ–2016–092).
expedited suspension proceedings; and identical rules for Bats BYX Exchange, Inc.); Similarly, the Financial Industry Regulatory
(3) amendments to Rule 8313 to permit Securities Exchange Act Release No. 77589 (April Authority, Inc. (‘‘FINRA’’) also recently prohibited
12, 2016), 81 FR 22691 (April 18, 2016) (SR– disruptive quoting and trading and amended its
release to the public of suspension procedural rules. See Securities Exchange Act
BatsEDGX–2016–04) (adopting identical rules for
Bats EDGX Exchange, Inc.). On May 19, 2016, Release No. 76361 (November 21, 2016), 81 FR
61 17 CFR 200.30–3(a)(12). 85650 (November 28, 2016) (SR–FINRA–2016–043).
NASDAQ filed a substantially similar proposed rule
1 15 U.S.C. 78s(b)(1). 4 15 U.S.C. 78f(b)(1).
change with the SEC for immediate effectiveness.
2 17 CFR 240.19b–4. See Securities Exchange Act Release No. 77913 5 15 U.S.C. 78f(b)(1).
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Document Created: 2018-11-14 10:01:29
Document Modified: 2018-11-14 10:01:29
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| Section | Notices | |
| FR Citation | 82 FR 25837 |
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