82 FR 28180 - Joint Industry Plan; Notice of Filing and Immediate Effectiveness of Amendment No. 2 to the National Market System Plan Governing the Consolidated Audit Trail by 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., Investors' Exchange LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE Arca, Inc., NYSE MKT LLC and NYSE National, Inc.
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 117 (June 20, 2017)
Federal Register Volume 82, Issue 117 (June 20, 2017)
| Page Range | 28180-28198 | |
| FR Document | 2017-12771 |
[Federal Register Volume 82, Number 117 (Tuesday, June 20, 2017)] [Notices] [Pages 28180-28198] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-12771] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80930; File No. 4-698] Joint Industry Plan; Notice of Filing and Immediate Effectiveness of Amendment No. 2 to the National Market System Plan Governing the Consolidated Audit Trail by 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., Investors' Exchange LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE Arca, Inc., NYSE MKT LLC and NYSE National, Inc. June 14, 2017. I. Introduction On May 9, 2017, the Operating Committee for CAT NMS, LLC (the ``Company''), on behalf of the following parties to the National Market System Plan Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan''): \1\ 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., Investors' Exchange LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE Arca, Inc., NYSE MKT LLC and NYSE National, Inc. (collectively, the ``Participants,'' ``self-regulatory organizations'' or ``SROs'') filed with the Securities and Exchange Commission (``Commission'' or ``SEC'') pursuant to Section 11A(a)(3) of the Securities Exchange Act of 1934 (``Exchange Act'') \2\ and Rule 608 thereunder,\3\ a proposal to amend the Plan (``Amendment No. 2'').\4\ The proposed amendment would add a fee schedule to a new Exhibit B of the Plan which sets forth the CAT fees to be paid by the Participants. A copy of proposed Exhibit B to the CAT NMS Plan is attached as Appendix A hereto. The Participants have also included, and as attached hereto, an Appendix B containing 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. The Commission is publishing this notice to solicit comments from interested persons on Amendment No. 2.\5\ --------------------------------------------------------------------------- \1\ On February 27, 2015, BATS-Y Exchange, Inc. (n/k/a Bats BYX Exchange, Inc.), BATS Exchange, Inc. (n/k/a Bats BZX Exchange, Inc.), BOX Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., EDGA Exchange, Inc. (n/k/a Bats EDGA Exchange, Inc.), EDGX Exchange, Inc. (n/k/a Bats EDGX Exchange, Inc.), Financial Industry Regulatory Authority, Inc., International Securities Exchange, LLC (n/k/a Nasdaq ISE LLC), ISE Gemini, LLC (n/ k/a Nasdaq GEMX, LLC), Miami International Securities Exchange LLC, NASDAQ OMX BX, Inc. (n/k/a NASDAQ BX, Inc.), NASDAQ OMX PHLX LLC (n/ k/a NASDAQ PHLX LLC), The NASDAQ Stock Market LLC, National Stock Exchange, Inc. (n/k/a NYSE National, Inc.), New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc. filed with the Commission, pursuant to Section 11A of the Exchange Act and Rule 608 of Regulation NMS thereunder, the CAT NMS Plan. 15 U.S.C. 78k-1; 17 CFR 242.608. The Plan was published for comment in the Federal Register on May 17, 2016, and approved by the Commission, as modified, on November 15, 2016. See Securities Exchange Act Release Nos. 77724 (April 27, 2016), 81 FR 30614 (May 17, 2016); 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016). On January 30, 2017, the Commission noticed for immediate effectiveness an amendment to the Plan to add MIAX PEARL, LLC as a Participant. See Securities Exchange Act Release No. 79898, 82 FR 9250 (February 3, 2017). \2\ 15 U.S.C 78k-1(a)(3). \3\ 17 CFR 242.608. \4\ See Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, to Brent J. Fields, Secretary, Commission, dated May 8, 2017 (``Transmittal Letter''). \5\ 17 CFR 242.608. --------------------------------------------------------------------------- II. Description of the Plan Set forth in this Section II is the statement of the purpose and summary of Amendment No. 2, along with the information required by Rule 608(a)(4) and (5) under the Exchange Act,\6\ prepared and submitted by the Participants to the Commission.\7\ --------------------------------------------------------------------------- \6\ See 17 CFR 242.608(a)(4) and (a)(5). \7\ See Transmittal Letter, supra note 4. --------------------------------------------------------------------------- A. Description of the Amendments to the CAT NMS Plan (1) Executive Summary The following provides an executive summary of the CAT funding model approved by the Operating Committee, as well as Participants' 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.CAT Costs. The CAT funding model is designed to establish CAT-specific [[Page 28181]] 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 A(2)(E) below) 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 A(2) below) Industry Member Fees. Each Industry Member (other than Execution Venue ATSs) will be placed into one of nine tiers of fixed fees, based on ``message traffic'' in Eligible Securities for a defined period (as discussed below). Prior to the start of CAT reporting, ``message traffic'' will be comprised of historical equity and equity options orders, cancels and quotes provided by each exchange and FINRA over the previous three months. After an Industry Member begins reporting to the CAT, ``message traffic'' will be calculated based on the Industry Member's Reportable Events reported to the CAT. Industry Members with lower levels of message traffic will pay a lower fee and Industry Members with higher levels of message traffic will pay a higher fee. (See Section A(2)(B) 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 A(2)(C) 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 A(2)(D) 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 A(2)(F) below) Fee Schedule. The quarterly CAT Fees for each tier for Participants are set forth in the two fee schedules in proposed Exhibit B to the CAT NMS Plan, one for Execution Venues for NMS Stocks and OTC Equity Securities and one for Execution Venues for Listed Options. (See Section A(3) 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'' \8\ and ``reflects a reasonable exercise of the Participants' funding authority to recover the Participants' costs related to the CAT.'' \9\ --------------------------------------------------------------------------- \8\ Approval Order at 84796. \9\ 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.'' \10\ The Commission further noted the following: --------------------------------------------------------------------------- \10\ 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.\11\ --------------------------------------------------------------------------- \11\ 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.\12\ 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.\13\ Additionally, a strictly variable or metered funding model based on message volume would [[Page 28182]] 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.'' \14\ --------------------------------------------------------------------------- \12\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order at 85006. \13\ In choosing a tiered fee structure, the self-regulatory organizations 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. \14\ Approval Order at 84796. --------------------------------------------------------------------------- In addition, multiple reviews of current broker-dealer order and trading data submitted under existing reporting requirements showed a wide range in activity among broker-dealers, with a number of broker- dealers submitting fewer than 1,000 orders per month and other broker- dealers submitting millions and even billions of orders in the same period. Accordingly, the CAT NMS Plan includes a tiered approach to fees. The tiered approach helps ensure that fees are equitably allocated among similarly situated CAT Reporters and furthers the goal of lessening the impact on smaller firms.\15\ 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. --------------------------------------------------------------------------- \15\ 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.\16\ 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.\17\ 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.\18\ --------------------------------------------------------------------------- \16\ Approval Order at 85005. \17\ Id. \18\ 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)'' \19\ 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.\20\ 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.\21\ --------------------------------------------------------------------------- \19\ Id. at 84796. \20\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order at 85005. \21\ 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.\22\ 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.\23\ --------------------------------------------------------------------------- \22\ Section 11.2(c) of the CAT NMS Plan. \23\ 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.'' \24\ 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.'' \25\ --------------------------------------------------------------------------- \24\ Section 11.2(e) of the CAT NMS Plan. \25\ 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.\26\ 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.'' \27\ 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.'' \28\ --------------------------------------------------------------------------- \26\ Id. at 84792. \27\ 26 U.S.C. 501(c)(6). \28\ 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 [[Page 28183]] applied in practice, including the number of fee tiers and the applicable fees for each tier. The complete funding model is described below, including those fees that are to be paid by Industry Members. Proposed Exhibit B, however, does not apply to Industry Members; proposed Exhibit B only applies to Participants. The CAT Fees for Industry Members will be imposed separately by the Operating Committee pursuant to rules adopted by the individual self-regulatory organizations. (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 [[Page 28184]] stability and elasticity within the funding model, allowing the funding model to respond to changes in either the total number of Industry Members or the total level of message traffic. The following chart illustrates the breakdown of nine Industry Member tiers across the monthly average of total equity and equity options orders, cancels and quotes in Q1 2016 and identifies relative gaps across varying levels of Industry Member message traffic as well as message traffic thresholds between the largest of Industry Member message traffic gaps. The Operating Committee referenced similar distribution illustrations to determine the appropriate division of Industry Member percentages in each tier by considering the grouping of firms with similar levels of message traffic and seeking to identify relative breakpoints in the message traffic between such groupings. In reviewing the chart and its corresponding table, note that while these distribution illustrations were referenced to help differentiate between Industry Member tiers, the proposed funding model is directly driven, not by fixed message traffic thresholds, but rather by fixed percentages of Industry Members across tiers to account for fluctuating levels of message traffic across time and to provide for the financial stability of the CAT by ensuring that the funding model will recover the required amounts regardless of changes in the number of Industry Members or the amount of message traffic. Actual messages in any tier will vary based on the actual traffic in a given measurement period, as well as the number of firms included in the measurement period. The Industry Member Percentages and Industry Member Recovery Allocation for each tier will remain fixed with each Industry Member's tier to be reassigned periodically, as described below in Section A(2)(H). [GRAPHIC] [TIFF OMITTED] TN20JN17.000 ------------------------------------------------------------------------ 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: [[Page 28185]] ---------------------------------------------------------------------------------------------------------------- Percentage of Percentage of industry Percentage of Industry member tier industry member total recovery members recovery ---------------------------------------------------------------------------------------------------------------- Tier 1.......................................................... 0.500 8.50 6.38 Tier 2.......................................................... 2.500 35.00 26.25 Tier 3.......................................................... 2.125 21.25 15.94 Tier 4.......................................................... 4.625 15.75 11.81 Tier 5.......................................................... 3.625 7.75 5.81 Tier 6.......................................................... 4.000 5.25 3.94 Tier 7.......................................................... 17.500 4.50 3.38 Tier 8.......................................................... 20.125 1.50 1.13 Tier 9.......................................................... 45.000 0.50 0.38 ----------------------------------------------- Total....................................................... 100 100 75 ---------------------------------------------------------------------------------------------------------------- For the purposes of creating these tiers based on message traffic, the Operating Committee determined to define the term ``message traffic'' separately for the period before the commencement of CAT reporting and for the period after the start of CAT reporting. The different definition for message traffic is necessary as there will be no Reportable Events as defined in the Plan, prior to the commencement of CAT reporting. Accordingly, prior to the start of CAT reporting, ``message traffic'' will be comprised of historical equity and equity options orders, cancels and quotes provided by each exchange and FINRA over the previous three months.\29\ 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.\30\ 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. --------------------------------------------------------------------------- \29\ 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. \30\ 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.\31\ --------------------------------------------------------------------------- \31\ 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).'' \32\ --------------------------------------------------------------------------- \32\ 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.\33\ --------------------------------------------------------------------------- \33\ 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). [[Page 28186]] Discussed below is how the funding model treats the two types of Execution Venues. (I) NMS Stocks and OTC Equity Securities Section 11.3(a)(i) of the CAT NMS Plan states that each Execution Venue that (i) executes transactions or, (ii) in the case of a national securities association, has trades reported by its members to its trade reporting facility or facilities for reporting transactions effected otherwise than on an exchange, in NMS Stocks or OTC Equity Securities will pay a fixed fee depending on the market share of that Execution Venue in NMS Stocks and OTC Equity Securities, with the Operating Committee establishing at least two and not more than five tiers of fixed fees, based on an Execution Venue's NMS Stocks and OTC Equity Securities market share. For these purposes, market share for Execution Venues that execute transactions will be calculated by share volume, and market share for a national securities association that has trades reported by its members to its trade reporting facility or facilities for reporting transactions effected otherwise than on an exchange in NMS Stocks or OTC Equity Securities will be calculated based on share volume of trades reported, provided, however, that the share volume reported to such national securities association by an Execution Venue shall not be included in the calculation of such national security association's market share. In accordance with Section 11.3(a)(i) of the CAT NMS Plan, the Operating Committee approved a tiered fee structure for Equity Execution Venues and Option Execution Venues. In determining the Equity Execution Venue Tiers, the Operating Committee considered the funding principles set forth in Section 11.2 of the CAT NMS Plan, seeking to create funding tiers that take into account the relative impact on system resources of different Equity Execution Venues, and that establish comparable fees among the CAT Reporters with the most Reportable Events. Each Equity Execution Venue will be placed into one of two tiers of fixed fees, based on the Execution Venue's NMS Stocks and OTC Equity Securities market share. In choosing two tiers, the Operating Committee performed an analysis similar to that discussed above with regard to the non-Execution Venue Industry Members to determine the number of tiers for Equity Execution Venues. The Operating Committee determined to establish two tiers for Equity Execution Venues, rather than a larger number of tiers as established for non-Execution Venue Industry Members, because the two tiers were sufficient to distinguish between the smaller number of Equity Execution Venues based on market share. Furthermore, the incorporation of additional Equity Execution Venue tiers would result in significantly higher fees for Tier 1 Equity Execution Venues and diminish comparability between Execution Venues and Industry Members. Each Equity Execution Venue will be ranked by market share and tiered by predefined Execution Venue percentages, (the ``Equity Execution Venue Percentages''). In determining the fixed percentage of Equity Execution Venues in each tier, the Operating Committee looked at historical market share of share volume for execution venues. Equities Execution Venue market share of share volume were sourced from market statistics made publicly-available by Bats Global Markets, Inc. (``Bats''). ATS market share of share volume was sourced from market statistics made publicly-available by FINRA. FINRA trading [sic] reporting facility (``TRF'') market share of share volume was sourced from market statistics made publicly available by Bats. As indicated by FINRA, ATSs accounted for 37.80% of the share volume across the TRFs during the recent tiering period. A 37.80/62.20 split was applied to the ATS and non-ATS breakdown of FINRA market share, with FINRA tiered based only on the non-ATS portion of its TRF market share of share volume. Based on this, the Operating Committee considered the distribution of Execution Venues, and grouped together Execution Venues with similar levels of market share of share volume. In doing so, the Participants considered that, as previously noted, Execution Venues in many cases have similar levels of message traffic due to quoting activity, and determined that it was simpler and more appropriate to have fewer, rather than more, Execution Venue tiers to distinguish between Execution Venues. The percentage of costs recovered by each Equity Execution Venue tier will be determined by predefined percentage allocations (the ``Equity Execution Venue Recovery Allocation''). In determining the fixed percentage allocation of costs recovered for each tier, the Operating Committee considered the impact of CAT Reporter market share activity on the CAT System as well as the distribution of total market volume across Equity Execution Venues while seeking to maintain comparable fees among the largest CAT Reporters. Accordingly, following the determination of the percentage of Execution Venues in each tier, the Operating Committee identified the percentage of total market volume for each tier based on the historical market share upon which Execution Venues had been initially ranked. Taking this into account along with the resulting percentage of total recovery, the percentage allocation of costs recovered for each tier were assigned, allocating higher percentages of recovery to the tier with a higher level of market share while avoiding any inappropriate burden on competition. Furthermore, due to the similar levels of impact on the CAT System across Execution Venues, there is less variation in CAT Fees between the highest and lowest of tiers for Execution Venues. Furthermore, by using percentages of Equity Execution Venues and costs recovered per tier, the Operating Committee sought to include stability and elasticity within the funding model, allowing the funding model to respond to changes in either the total number of Equity Execution Venues or changes in market share. Based on this analysis, the Operating Committee approved the following Equity Execution Venue Percentages and Recovery Allocations: ---------------------------------------------------------------------------------------------------------------- Percentage of Equity Percentage of Percentage of Equity Execution Venue tier Execution Execution total recovery Venues Venue recovery ---------------------------------------------------------------------------------------------------------------- Tier 1.......................................................... 25.00 26.00 6.50 Tier 2.......................................................... 75.00 49.00 12.25 ----------------------------------------------- Total....................................................... 100 75 18.75 ---------------------------------------------------------------------------------------------------------------- [[Page 28187]] The following table exhibits the relative separation of market share of share volume between Tier 1 and Tier 2 Equity Execution Venues. In reviewing the table, note that while this division was referenced as a data point to help differentiate between Equity Execution Venue tiers, the proposed funding model is directly driven not by market share thresholds, but rather by fixed percentages of Equity Execution Venues across tiers to account for fluctuating levels of market share across time. Actual market share in any tier will vary based on the actual market activity in a given measurement period, as well as the number of Equity Execution Venues included in the measurement period. The Equity Execution Venue Percentages and Equity Execution Venue Recovery Allocation for each tier will remain fixed with each Equity Execution Venue tier to be reassigned periodically, as described below in Section A(2)(H). ------------------------------------------------------------------------ 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 Options Percentage of Percentage of Options Execution Venue tier Execution Execution total recovery Venues Venue recovery ---------------------------------------------------------------------------------------------------------------- Tier 1.......................................................... 75.00 20.00 5.00 Tier 2.......................................................... 25.00 5.00 1.25 ----------------------------------------------- Total....................................................... 100 25 6.25 ---------------------------------------------------------------------------------------------------------------- The following table exhibits the relative separation of market share of share volume between Tier 1 and Tier 2 Options Execution Venues. In reviewing the table, note that while this division was referenced as a data point to help differentiate between Options Execution Venue tiers, the proposed funding model is directly driven, not by market share thresholds, but rather by fixed percentages of Options Execution Venues across tiers to account for fluctuating levels of market share across time. Actual market share in any tier will vary based on the actual market activity in a given measurement period, as well as the number of Options Execution Venues included in the measurement period. The Options Execution Venue Percentages and Equity Execution Venue Recovery Allocation for each tier will remain fixed with each Options Execution Venue tier to be reassigned periodically, as described below in Section A(2)(H). ------------------------------------------------------------------------ Options market Options Execution Venue tier share of share volume (%) ------------------------------------------------------------------------ Tier 1.................................................. >=1 Tier 2.................................................. <1 ------------------------------------------------------------------------ [[Page 28188]] (III) Market Share/Tier Assignments The Operating Committee determined that, prior to the start of CAT reporting, market share for Execution Venues would be sourced from publicly-available market data. Options and equity volumes for Participants will be sourced from market data made publicly available by Bats while Execution Venue ATS volumes will be sourced from market data made publicly available by FINRA. Set forth in Appendix B to this letter 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.\34\ --------------------------------------------------------------------------- \34\ It is anticipated that CAT-related costs incurred prior to November 21, 2016 will be addressed via a separate 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 [[Page 28189]] the year. These amount to an estimated $5,200,000. The second category of non-Plan Processor costs are estimated insurance costs for the year. Based on discussions with potential insurance providers, assuming $2-5 million insurance premium on $100 million in coverage, the Company has received an estimate of $3,000,000 for the annual cost. The final cost figures will be determined following receipt of final underwriter quotes. The third category of non-Plan Processor costs is the operational reserve, which is comprised of three months of ongoing Plan Processor costs ($9,375,000), third party support costs ($1,300,000) and insurance costs ($750,000). The Operating Committee aims to accumulate the necessary funds for the establishment of the three-month operating reserve for the Company through the CAT Fees charged to CAT Reporters for the year. On an ongoing basis, the Operating Committee will account for any potential need for the replenishment of the operating reserve or other changes to total cost during its annual budgeting process. The following table summarizes the Plan Processor and non-Plan Processor cost components which comprise the total CAT costs of $50,700,000. ------------------------------------------------------------------------ Cost category Cost component Amount ------------------------------------------------------------------------ Plan Processor................. Operational Costs...... $37,500,000 Third Party Support 5,200,000 Costs. Non-Plan Processor............. Operational Reserve.... 35 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: \36\ --------------------------------------------------------------------------- \35\ This $5,000,000 represents the gradual accumulation of the funds for a target operating reserve of $11,425,000. \36\ Note that all monthly, quarterly and annual CAT Fees have been rounded to the nearest dollar. \37\ 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). --------------------------------------------------------------------------- For Industry Members (other than Execution Venue ATSs): ---------------------------------------------------------------------------------------------------------------- CAT fees paid Tier Monthly CAT Quarterly CAT annually 37 fee fee ---------------------------------------------------------------------------------------------------------------- 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: --------------------------------------------------------------------------- \38\ 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). ---------------------------------------------------------------------------------------------------------------- CAT fees paid Tier Monthly CAT Quarterly CAT annually 38 fee fee ---------------------------------------------------------------------------------------------------------------- 1............................................................... $21,125 $63,375 $253,500 2............................................................... 12,940 38,820 155,280 ---------------------------------------------------------------------------------------------------------------- For Execution Venues for Listed Options: --------------------------------------------------------------------------- \39\ 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). ---------------------------------------------------------------------------------------------------------------- CAT fees paid Tier Monthly CAT Quarterly CAT annually 39 fee fee ---------------------------------------------------------------------------------------------------------------- 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 [[Page 28190]] (other than Execution Venue ATSs) are not identical to the top tier for Execution Venues, however, because the Operating Committee also determined that the fees for Execution Venue complexes should be comparable to those of Industry Member complexes. The difference in the fees reflects this decision to recognize affiliations. The Operating Committee has calculated the schedule of effective fees for Industry Members (other than Execution Venue ATSs) and Execution Venues in the following manner. Note that the calculation of CAT Reporter fees assumes 53 Equity Execution Venues, 15 Options Execution Venues and 1,631 Industry Members (other than Execution Venue ATSs) as of January 2017. Calculation of Annual Tier Fees for Industry Members (``IM'') ---------------------------------------------------------------------------------------------------------------- Percentage of Percentage of Industry Percentage of Industry Member tier Industry Member total recovery Members recovery ---------------------------------------------------------------------------------------------------------------- Tier 1.......................................................... 0.500 8.50 6.38 Tier 2.......................................................... 2.500 35.00 26.25 Tier 3.......................................................... 2.125 21.25 15.94 Tier 4.......................................................... 4.625 15.75 11.81 Tier 5.......................................................... 3.625 7.75 5.81 Tier 6.......................................................... 4.000 5.25 3.94 Tier 7.......................................................... 17.500 4.50 3.38 Tier 8.......................................................... 20.125 1.50 1.13 Tier 9.......................................................... 45.000 0.50 0.38 ----------------------------------------------- Total....................................................... 100 100 75 ---------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ Estimated number of Industry Member tier Industry Members ------------------------------------------------------------------------ Tier 1.................................................. 8 Tier 2.................................................. 41 Tier 3.................................................. 35 Tier 4.................................................. 75 Tier 5.................................................. 59 Tier 6.................................................. 65 Tier 7.................................................. 285 Tier 8.................................................. 328 Tier 9.................................................. 735 --------------- Total............................................... 1,631 ------------------------------------------------------------------------ BILLING CODE 8011-01-P [[Page 28191]] [GRAPHIC] [TIFF OMITTED] TN20JN17.001 BILLING CODE 8011-01-C Calculation of Annual Tier Fees for Equity Execution Venues (``EV'') ---------------------------------------------------------------------------------------------------------------- Percentage of Equity Percentage of Percentage of Equity Execution Venue tier Execution Execution total recovery Venues Venue recovery ---------------------------------------------------------------------------------------------------------------- Tier 1.......................................................... 25.00 26.00 6.50 Tier 2.......................................................... 75.00 49.00 12.25 ----------------------------------------------- Total....................................................... 100 75 18.75 ---------------------------------------------------------------------------------------------------------------- [[Page 28192]] ------------------------------------------------------------------------ Estimated number of Equity Execution Venue tier Equity Execution Venues ------------------------------------------------------------------------ Tier 1.................................................. 13 Tier 2.................................................. 40 --------------- Total............................................... 53 ------------------------------------------------------------------------ [GRAPHIC] [TIFF OMITTED] TN20JN17.002 Calculation of Annual Tier Fees for Options Execution Venues (``EV'') ---------------------------------------------------------------------------------------------------------------- Percentage of Percentage of Options Execution Percentage of Options Execution Venue tier Execution Venue total Venues recovery recovery ---------------------------------------------------------------------------------------------------------------- Tier 1.......................................................... 75.00 20.00 5.00 Tier 2.......................................................... 25.00 5.00 1.25 ----------------------------------------------- Total....................................................... 100 25 6.25 ---------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ Estimated number of Options Execution Venue tier Options Execution Venues ------------------------------------------------------------------------ Tier 1.................................................. 11 Tier 2.................................................. 4 --------------- Total............................................... 15 ------------------------------------------------------------------------ [GRAPHIC] [TIFF OMITTED] TN20JN17.003 Traceability of Total CAT Fees ---------------------------------------------------------------------------------------------------------------- Estimated Type Industry Member tier number of CAT fees paid Total members annually recovery ---------------------------------------------------------------------------------------------------------------- Industry Members...................... Tier 1.................. 8 $404,016 $3,232,128 Tier 2.................. 41 324,612 13,309,092 Tier 3.................. 35 230,868 8,080,380 Tier 4.................. 75 79,860 5,989,500 Tier 5.................. 59 49,956 2,947,404 Tier 6.................. 65 30,720 1,996,800 Tier 7.................. 285 6,012 1,713,420 [[Page 28193]] 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 \40\................... ........................ .............. .............. 9,036 ---------------------------------------------------------------------------------------------------------------- (F) Comparability of Fees --------------------------------------------------------------------------- \40\ The amount in excess of the total CAT costs will contribute to the gradual accumulation of the target operating reserve of $11.425 million. --------------------------------------------------------------------------- The funding principles require a funding model in which the fees charged to the CAT Reporters with the most CAT-related activity (measured by market share and/or message traffic, as applicable) are generally comparable (where, for these comparability purposes, the tiered fee structure takes into consideration affiliations between or among CAT Reporters, whether Execution Venue and/or Industry Members). Accordingly, in creating the model, the Operating Committee sought to take account of the affiliations between or among CAT Reporters--that is, where affiliated entities may have multiple Industry Member and/or Execution Venue licenses, by maintaining relative comparability of fees among such affiliations with the most expected CAT-related activity. To do this, the Participants identified representative affiliations in the largest tier of both Execution Venues and Industry Members and compared the aggregate fees that would be paid by such firms. While the proposed fees for Tier 1 and Tier 2 Industry Members are relatively higher than those of Tier 1 and Tier 2 Execution Venues, Execution Venue complex fees are relatively higher than those of Industry Member complexes largely due to affiliations between Execution Venues. The tables set forth below describe the largest Execution Venue and Industry Member complexes and their associated fees: \41\ --------------------------------------------------------------------------- \41\ Note that the analysis of the complexes was performed on a best efforts basis, as all affiliations between the 1631 Industry Members may not be included. Execution Venue Complexes ---------------------------------------------------------------------------------------------------------------- Listing of Equity Listing of Options Total fees by Execution Venue complex Execution Venue tiers Execution Venue tier EV complex ---------------------------------------------------------------------------------------------------------------- Execution Venue Complex 1............... Tier 1 (x2)...... Tier 1 (x4)...... $1,900,962 Tier 2 (x1) Tier 2 (x2) Execution Venue Complex 2............... Tier 1 (x2)...... Tier 1 (x2)...... 1,863,801 Tier 2 (x1) Execution Venue Complex 3............... Tier 1 (x2)...... Tier 1 (x2)...... 1,278,447 Tier 2 (x2) ---------------------------------------------------------------------------------------------------------------- Industry Member Complexes ---------------------------------------------------------------------------------------------------------------- Listing of Industry Member Total fees by Industry Member complex tiers Listing of ATS tiers IM complex ---------------------------------------------------------------------------------------------------------------- Industry Member Complex 1............... Tier 1 (x2)...... Tier 2 (x1)...... $963,300 Industry Member Complex 2............... Tier 1 (x1)...... Tier 2 (x3)...... 949,674 Tier 4 (x1) Industry Member Complex 3............... Tier 1 (x1)...... Tier 2 (x1)...... 883,888 Tier 2 (x1) Industry Member Complex 4............... Tier 1 (x1)...... N/A....................... 808,472 Tier 2 (x1) Tier 4 (x1) Industry Member Complex 5............... Tier 2 (x1)...... Tier 2 (x1)...... 796,595 Tier 3 (x1) Tier 4 (x1) [[Page 28194]] 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. The Operating Committee will issue a notice to the Participants when the billing mechanism has been established, specifying the date when such invoicing of Participants 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.\42\ 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.\43\ 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 the Operating Committee will file such changes with the SEC pursuant to Rule 608 of the Exchange Act, and any such changes will become effective in accordance with the requirements of Rule 608. --------------------------------------------------------------------------- \42\ 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 self-regulatory organizations, such as any changes in costs related to the retirement of existing regulatory systems, such as OATS. \43\ 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. 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, the percentage of CAT Reporters in each assigned tier is relative. Therefore, a CAT Reporter's assigned tier will depend, not only on its own message traffic or market share, but it also will depend on the message traffic/market share across all CAT Reporters. For example, the percentage of Industry Members (other than Execution Venue ATSs) in each tier is relative such that such Industry Member's assigned tier will depend on message traffic generated across all CAT Reporters as well as the total number of CAT Reporters. The Operating Committee will inform CAT Reporters of their assigned tier every three months following the periodic tiering process, as the funding model will compare an individual CAT Reporter's activity to that of other CAT Reporters in the marketplace. The following demonstrates a tier reassignment. In accordance with the funding model, the top 75% of Options Execution Venues in market share are categorized as Tier 1 while the bottom 25% of Options Execution Venues in market share are categorized as Tier 2. In the sample scenario below, Options Execution Venue L is initially categorized as a Tier 2 Options Execution Venue in Period A due to its market share. When market share is recalculated for Period B, the market share of Execution Venue L increases, and it is therefore subsequently reranked and reassigned to Tier 1 in Period B. Correspondingly, Options Execution Venue K, initially a Tier 1 Options Execution Venue in Period A, is reassigned to Tier 2 in Period B due to decreases in its market share of share volume. -------------------------------------------------------------------------------------------------------------------------------------------------------- Period A Period B -------------------------------------------------------------------------------------------------------------------------------------------------------- Market share Market share Options Execution Venue rank Tier Options Execution Venue rank Tier -------------------------------------------------------------------------------------------------------------------------------------------------------- Options Execution Venue A...................... 1 1 Options Execution Venue A............. 1 1 [[Page 28195]] 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 The Operating Committee proposes to add Exhibit B to the CAT NMS Plan to add a fee schedule setting forth the CAT Fees applicable to Participants. Proposed Exhibit B is set forth in Appendix A to this letter. Paragraph (a)(1) of proposed Exhibit B sets forth the CAT Fees applicable to Execution Venues for NMS Stocks and OTC Equity Securities. Specifically, paragraph (a)(1) states that the Company will assign each Execution Venue for NMS Stocks and/or OTC Equity Securities to a fee tier once every quarter, where such tier assignment is calculated by ranking each such Execution Venue based on its total market share for the three months prior to the quarterly tier calculation day and assigning each such Execution Venue to a tier based on that ranking and predefined percentages for such Execution Venues. The Execution Venues for NMS Stocks and/or OTC Equity Securities with the higher total quarterly market share will be ranked in Tier 1, and such Execution Venues with the lower quarterly market share will be ranked in Tier 2. Specifically, paragraph (a)(1) states that, each quarter, each Execution Venue for NMS Stocks and/or OTC Equity Securities shall pay in the manner prescribed by the Company the following CAT Fee corresponding to the tier assigned by the CAT NMS, LLC for such Execution Venue for that quarter: ------------------------------------------------------------------------ Percentage of Execution Venues for NMS Quarterly CAT Tier stocks and/or fee OTC equity securities ------------------------------------------------------------------------ 1....................................... 25.00 $63,375 2....................................... 75.00 38,820 ------------------------------------------------------------------------ In addition, paragraph (a)(2) of the proposed Exhibit B states that the Company will assign each Execution Venue for Listed Options to a fee tier once every quarter, where such tier assignment is calculated by ranking each such Execution Venue based on its total market share for the three months prior to the quarterly tier calculation day and assigning each such Execution Venue to a tier based on that ranking and predefined percentages for such Execution Venues. The Execution Venues for Listed Options with the higher total quarterly market share will be ranked in Tier 1, and such Execution Venues with the lower quarterly market share will be ranked in Tier 2. Specifically, paragraph (b)(1) states that, each quarter, each Execution Venue for Listed Options shall pay in the manner prescribed by the Company the following CAT Fee corresponding to the tier assigned by the CAT NMS, LLC for such Execution Venue for that quarter: ------------------------------------------------------------------------ Percentage of Execution Tier Venues for Quarterly CAT listed options fee (%) ------------------------------------------------------------------------ 1....................................... 25.00 $57,615 2....................................... 75.00 39,612 ------------------------------------------------------------------------ B. Governing or Constituent Documents Not applicable. C. Implementation of Amendment The terms of the proposed amendment will become effective upon filing pursuant to Rule 608(b)(3)(i) of the Exchange Act because it establishes a fee or other charge collected on behalf of all of the Participants in connection with access to, or use of, any facility contemplated by the plan (including changes in any provision with respect to distribution of any net proceeds from such fees or other charges to the sponsors and/or participants).\44\ At any time within sixty days of the filing of this amendment, the Commission may summarily abrogate the amendment and require that it be refiled pursuant to paragraph (b)(1) [sic] of Rule 608, if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors or the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system or otherwise in furtherance of the purposes of the Exchange Act. --------------------------------------------------------------------------- \44\ 17 CFR 242.608(b)(3)(i). --------------------------------------------------------------------------- D. Development and Implementation Phases Not applicable. E. Analysis of Impact on Competition The Operating Committee does not believe that the proposed amendment will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. The Operating Committee notes that the proposed amendment implements provisions of the CAT NMS Plan approved by the Commission, and is designed to assist the Participants in meeting their regulatory obligations pursuant to the Plan. Because all national securities exchanges and FINRA are subject to the proposed CAT Fees set forth in the proposed amendment, this is not a competitive filing that raises competition issues between and among the exchanges and FINRA. Moreover, as previously described, the Operating Committee believes that the proposed fee schedule fairly and equitably allocates costs among CAT Reporters. In particular, the proposed [[Page 28196]] fee schedule is structured to impose comparable fees on similarly situated CAT Reporters, and lessen the impact on smaller CAT Reporters. CAT Reporters with similar levels of CAT activity will pay similar fees. For example, Industry Members (other than Execution Venue ATSs) with higher levels of message traffic will pay higher fees, and those with lower levels of message traffic will pay lower fees. Similarly, Execution Venue ATSs and other Execution Venues with larger market share will pay higher fees, and those with lower levels of market share will pay lower fees. Therefore, given that there is generally a relationship between message traffic and market share to the CAT Reporter's size, smaller CAT Reporters generally pay less than larger CAT Reporters. Accordingly, the Operating Committee 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, the Operating Committee does not believe that the fees will impose any burden on the competition between ATSs and exchanges. Accordingly, SRO [sic] 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. F. Written Understanding or Agreements Relating to Interpretation of, or Participation in, Plan Not applicable. G. Approval by Plan Sponsors in Accordance With Plan Section 12.3 of the Plan states that, subject to certain exceptions, the Plan may be amended from time to time only by a written amendment, authorized by the affirmative vote of not less than two- thirds of all of the Participants, that has been approved by the SEC pursuant to Rule 608 or has otherwise become effective under Rule 608. In addition, Section 4.3(a)(vi) of the Plan requires the Operating Committee, by Majority Vote, to authorize action to determine the appropriate funding-related policies, procedures and practices- consistent with Article XI. The Operating Committee has satisfied both of these requirements. H. Description of Operation of Facility Contemplated by the Proposed Amendment Not applicable. I. Terms and Conditions of Access Not applicable. J. Method of Determination and Imposition, and Amount of, Fees and Charges Section A of this letter describes in detail how the Operating Committee developed the proposed CAT fees, including a detailed discussion of the proposed funding model for the CAT. K. Method and Frequency of Processor Evaluation Not applicable. L. Dispute Resolution Section 11.5 of the CAT NMS Plan addresses the resolution of disputes regarding Participants' CAT fees charged to Participants and Industry Members. Specifically, Section 11.5 states that disputes with respect to fees the Company charges Participants pursuant to Article XI of the CAT NMS Plan shall be determined by the Operating Committee or a Subcommittee designated by the Operating Committee. Decisions by the Operating Committee or such designated Subcommittee on such matters shall be binding on Participants, without prejudice to the rights of any Participant to seek redress from the SEC pursuant to Rule 608 or in any other appropriate forum. III. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the amendment is consistent with the Exchange 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 4-698 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number 4-698.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 plan amendment that are filed with the Commission, and all written communications relating to the amendment between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the Participants' offices. 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 4-698 and should be submitted on or before July 11, 2017. By the Commission. Eduardo A. Aleman, Assistant Secretary. Appendix A [Additions underlined; deletions bracketed] Exhibit B CAT Fees (a) Participant CAT Fee Schedule. (1) CAT Fees: Execution Venues for NMS Stocks and/or OTC Equity Securities. The CAT NMS, LLC will assign each Execution Venue for NMS Stocks and/or OTC Equity Securities to a fee tier once every quarter, where such tier assignment is calculated by ranking each such Execution Venue based on its total market share for the three months prior to the quarterly tier calculation day and assigning each such Execution Venue to a tier based on that ranking and predefined percentages for such Execution Venues. The Execution Venues for NMS Stocks and/or OTC Equity Securities with the higher total quarterly market share will be ranked in Tier 1, and such Execution Venues with the lower quarterly market share will be ranked in Tier 2. Each quarter, each Execution Venue for NMS Stocks and/or OTC Equity Securities shall pay in the manner prescribed by the CAT NMS, LLC the following CAT Fee corresponding to the tier assigned by the CAT NMS, LLC for such Execution Venue for that quarter: [[Page 28197]] ------------------------------------------------------------------------ Percentage of Execution Venues for NMS stocks and/or Tier OTC equity Quarterly CAT securities (%) fee ------------------------------------------------------------------------ 1....................................... 25.00 $63,375 2....................................... 75.00 38,820 ------------------------------------------------------------------------ (2) CAT Fees: Execution Venues for Listed Options The CAT NMS, LLC will assign each Execution Venue for Listed Options to a fee tier once every quarter, where such tier assignment is calculated by ranking each such Execution Venue based on its total market share for the three months prior to the quarterly tier calculation day and assigning each such Execution Venue to a tier based on that ranking and predefined percentages for such Execution Venues. The Execution Venues for Listed Options with the higher total quarterly market share will be ranked in Tier 1, and such Execution Venues with the lower quarterly market share will be ranked in Tier 2. Each quarter, each Execution Venue for Listed Options shall pay in the manner prescribed by the CAT NMS, LLC the following CAT Fee corresponding to the tier assigned by the CAT NMS, LLC for such Execution Venue for that quarter: ------------------------------------------------------------------------ Percentage of Execution Venues for Tier listed options Quarterly CAT (%) fee ------------------------------------------------------------------------ 1....................................... 25.00 $57,615 2....................................... 75.00 39,612 ------------------------------------------------------------------------ Appendix B --------------------------------------------------------------------------- \45\ Based on November 2016 through January 2017 volume sourced from Bats and FINRA. Equity Execution Venue Rank and Tier ------------------------------------------------------------------------ Market share of share Market participant volume \45\ Rank Tier (%) ------------------------------------------------------------------------ OTC LINK ATS...................... 29.90 1 1 Financial Industry Regulatory 16.50 2 1 Authority, Inc................... The NASDAQ Stock Market LLC....... 9.67 3 1 New York Stock Exchange LLC....... 9.08 4 1 NYSE Arca, Inc.................... 7.05 5 1 Bats EDGX Exchange, Inc........... 4.89 6 1 Bats BZX Exchange, Inc............ 4.24 7 1 Bats BYX Exchange, Inc............ 3.06 8 1 NASDAQ BX, Inc.................... 1.85 9 1 UBS ATS........................... 1.78 10 1 Bats EDGA Exchange, Inc........... 1.69 11 1 Investors' Exchange, LLC.......... 1.25 12 1 CROSSFINDER....................... 1.09 13 1 SUPERX............................ 0.79 14 2 MS POOL (ATS-4)................... 0.68 15 2 NASDAQ PHLX LLC................... 0.66 16 2 J.P. MORGAN AST (``JPM-X'')....... 0.56 17 2 LEVEL ATS......................... 0.49 18 2 INSTINCT X........................ 0.48 19 2 BIDS TRADING L.P.................. 0.44 20 2 BARCLAYS ATS (``LX'')............. 0.43 21 2 KCG MATCHIT....................... 0.42 22 2 SIGMA X........................... 0.39 23 2 INSTINET CONTINUOUS BLOCK CROSSING 0.34 24 2 SYSTEM (CBX)..................... Chicago Stock Exchange, Inc....... 0.31 25 2 POSIT............................. 0.30 26 2 CROSSSTREAM....................... 0.25 27 2 MS TRAJECTORY CROSS (ATS-1)....... 0.16 28 2 NYSE MKT LLC...................... 0.14 29 2 LIQUIDNET ATS..................... 0.13 30 2 IBKR ATS.......................... 0.13 31 2 MILLENNIUM........................ 0.12 32 2 GLOBAL OTC........................ 0.12 33 2 DEALERWEB, INC.................... 0.11 34 2 CITICROSS......................... 0.09 35 2 BLOCKCROSS ATS.................... 0.08 36 2 LIQUIDNET H20 ATS................. 0.07 37 2 CODA MARKETS, INC................. 0.07 38 2 INSTINET CROSSING, INSTINET BLX... 0.06 39 2 LUMINEX TRADING & ANALYTICS LLC... 0.03 40 2 LIGHT POOL........................ 0.02 41 2 MS RETAIL POOL.................... 0.02 42 2 CITIBLOC.......................... 0.02 43 2 NYSE National, Inc................ 0.01 44 2 USTOCKTRADE SECURITIES, INC....... 0.01 45 2 AQUA SECURITIES L.P............... 0.0047 46 2 XE................................ 0.0037 47 2 LIQUIFI........................... 0.0014 48 2 VARIABLE INVESTMENT ADVISORS, INC. 0.000073 49 2 ATS (VIAATS)..................... BARCLAYS DIRECTEX................. 0.0000303 50 2 [[Page 28198]] FNC AG STOCK, LLC................. 0.0000225 51 2 AX TRADING, LLC................... 0.0000026 52 2 PRO SECURITIES ATS................ 0.0000002 53 2 ------------------------------------------------------------------------ Options Execution Venue Rank and Tier ------------------------------------------------------------------------ Market share of share volume Market participant (Options Rank Tier contracts) \46\ (%) ------------------------------------------------------------------------ NASDAQ PHLX LLC................... 16.68 1 1 Chicago Board Options Exchange, 16.08 2 1 Incorporated..................... Bats BZX Options Exchange, Inc.... 11.53 3 1 Nasdaq ISE, LLC................... 10.63 4 1 NYSE Arca, Inc.................... 9.52 5 1 The NASDAQ Options Market LLC..... 9.01 6 1 NYSE MKT LLC...................... 8.01 7 1 Miami International Securities 5.84 8 1 Exchange, LLC.................... Nasdaq GEMX, LLC.................. 4.16 9 1 Chicago Board Options Exchange, 3.33 10 1 Incorporated 2................... BOX Options Exchange LLC.......... 3.02 11 1 Bats EDGX Options Exchange, Inc... 1.31 12 2 NASDAQ BX, Inc.................... 0.67 13 2 Nasdaq MRX, LLC................... 0.21 14 2 MIAX PEARL, LLC................... N/A \47\ 15 2 ------------------------------------------------------------------------ --------------------------------------------------------------------------- \46\ Based on November 2016 through January 2017 volume sourced from Bats. \47\ No market statistics as of January 2017. Launched trading operations on February 6, 2017. --------------------------------------------------------------------------- [FR Doc. 2017-12771 Filed 6-19-17; 8:45 am] BILLING CODE 8011-01-P
![28180 Federal Register / Vol. 82, No. 117 / Tuesday, June 20, 2017 / Notices
Comments may be submitted by any of SECURITIES AND EXCHANGE Chicago Stock Exchange, Inc., Financial
the following methods: COMMISSION Industry Regulatory Authority, Inc.,
Investors’ Exchange LLC, Miami
Electronic Comments [Release No. 34–80930; File No. 4–698]
International Securities Exchange, LLC,
• Use the Commission’s Internet Joint Industry Plan; Notice of Filing MIAX PEARL, LLC, NASDAQ BX, Inc.,
comment form (http://www.sec.gov/ and Immediate Effectiveness of Nasdaq GEMX, LLC, Nasdaq ISE, LLC,
Amendment No. 2 to the National Nasdaq MRX, LLC, NASDAQ PHLX
rules/sro.shtml); or
Market System Plan Governing the LLC, The NASDAQ Stock Market LLC,
• Send an email to rule-comments@ New York Stock Exchange LLC, NYSE
Consolidated Audit Trail by Bats BYX
sec.gov. Please include File Number SR– Arca, Inc., NYSE MKT LLC and NYSE
Exchange, Inc., Bats BZX Exchange,
ISE–2017–49 on the subject line. Inc., Bats EDGA Exchange, Inc., Bats National, Inc. (collectively, the
EDGX Exchange, Inc., BOX Options ‘‘Participants,’’ ‘‘self-regulatory
Paper Comments
Exchange LLC, C2 Options Exchange, organizations’’ or ‘‘SROs’’) filed with the
• Send paper comments in triplicate Incorporated, Chicago Board Options Securities and Exchange Commission
to Secretary, Securities and Exchange Exchange, Incorporated, Chicago (‘‘Commission’’ or ‘‘SEC’’) pursuant to
Commission, 100 F Street NE., Stock Exchange, Inc., Financial Section 11A(a)(3) of the Securities
Washington, DC 20549–1090. Industry Regulatory Authority, Inc., Exchange Act of 1934 (‘‘Exchange
Investors’ Exchange LLC, Miami Act’’) 2 and Rule 608 thereunder,3 a
All submissions should refer to File International Securities Exchange, proposal to amend the Plan
Number SR–ISE–2017–49. This file LLC, MIAX PEARL, LLC, NASDAQ BX, (‘‘Amendment No. 2’’).4 The proposed
number should be included on the Inc., Nasdaq GEMX, LLC, Nasdaq ISE, amendment would add a fee schedule to
subject line if email is used. To help the LLC, Nasdaq MRX, LLC, NASDAQ a new Exhibit B of the Plan which sets
Commission process and review your PHLX LLC, The NASDAQ Stock Market forth the CAT fees to be paid by the
comments more efficiently, please use LLC, New York Stock Exchange LLC, Participants. A copy of proposed Exhibit
only one method. The Commission will NYSE Arca, Inc., NYSE MKT LLC and B to the CAT NMS Plan is attached as
post all comments on the Commission’s NYSE National, Inc. Appendix A hereto. The Participants
Internet Web site (http://www.sec.gov/ have also included, and as attached
rules/sro.shtml). Copies of the June 14, 2017. hereto, an Appendix B containing two
submission, all subsequent I. Introduction charts, one listing the current Equity
Execution Venues, each with its rank
amendments, all written statements On May 9, 2017, the Operating and tier, and one listing the current
with respect to the proposed rule Committee for CAT NMS, LLC (the Options Execution Venues, each with its
change that are filed with the ‘‘Company’’), on behalf of the following rank and tier. The Commission is
Commission, and all written parties to the National Market System publishing this notice to solicit
communications relating to the Plan Governing the Consolidated Audit comments from interested persons on
proposed rule change between the Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’): 1 Amendment No. 2.5
Commission and any person, other than Bats BYX Exchange, Inc., Bats BZX
those that may be withheld from the Exchange, Inc., Bats EDGA Exchange, II. Description of the Plan
public in accordance with the Inc., Bats EDGX Exchange, Inc., BOX Set forth in this Section II is the
provisions of 5 U.S.C. 552, will be Options Exchange LLC, C2 Options statement of the purpose and summary
available for Web site viewing and Exchange, Incorporated, Chicago Board of Amendment No. 2, along with the
printing in the Commission’s Public Options Exchange, Incorporated, information required by Rule 608(a)(4)
Reference Room, 100 F Street NE., and (5) under the Exchange Act,6
Washington, DC 20549, on official
1 On February 27, 2015, BATS–Y Exchange, Inc. prepared and submitted by the
(n/k/a Bats BYX Exchange, Inc.), BATS Exchange, Participants to the Commission.7
business days between the hours of Inc. (n/k/a Bats BZX Exchange, Inc.), BOX Options
10:00 a.m. and 3:00 p.m. Copies of the Exchange LLC, C2 Options Exchange, Incorporated, A. Description of the Amendments to
filing also will be available for Chicago Board Options Exchange, Incorporated, the CAT NMS Plan
Chicago Stock Exchange, Inc., EDGA Exchange, Inc.
inspection and copying at the principal (n/k/a Bats EDGA Exchange, Inc.), EDGX Exchange, (1) Executive Summary
office of the Exchange. All comments Inc. (n/k/a Bats EDGX Exchange, Inc.), Financial
received will be posted without change; Industry Regulatory Authority, Inc., International The following provides an executive
the Commission does not edit personal Securities Exchange, LLC (n/k/a Nasdaq ISE LLC), summary of the CAT funding model
ISE Gemini, LLC (n/k/a Nasdaq GEMX, LLC), Miami approved by the Operating Committee,
identifying information from International Securities Exchange LLC, NASDAQ
submissions. You should submit only OMX BX, Inc. (n/k/a NASDAQ BX, Inc.), NASDAQ
as well as Participants’ obligations
information that you wish to make OMX PHLX LLC (n/k/a NASDAQ PHLX LLC), The related to the payment of CAT Fees
available publicly. All submissions NASDAQ Stock Market LLC, National Stock calculated pursuant to the CAT funding
Exchange, Inc. (n/k/a NYSE National, Inc.), New model. A detailed description of the
should refer to File Number SR–ISE– York Stock Exchange LLC, NYSE MKT LLC, and
CAT funding model and the CAT Fees
2017–49 and should be submitted on or NYSE Arca, Inc. filed with the Commission,
pursuant to Section 11A of the Exchange Act and follows this executive summary.
before July 11, 2017. • CAT Costs. The CAT funding model
Rule 608 of Regulation NMS thereunder, the CAT
For the Commission, by the Division of NMS Plan. 15 U.S.C. 78k–1; 17 CFR 242.608. The is designed to establish CAT-specific
Trading and Markets, pursuant to delegated Plan was published for comment in the Federal
Register on May 17, 2016, and approved by the
sradovich on DSK3GMQ082PROD with NOTICES
authority.17 Commission, as modified, on November 15, 2016.
2 15 U.S.C 78k–1(a)(3).
3 17 CFR 242.608.
Eduardo A. Aleman, See Securities Exchange Act Release Nos. 77724
4 See Letter from Michael Simon, CAT NMS Plan
(April 27, 2016), 81 FR 30614 (May 17, 2016); 79318
Assistant Secretary. (November 15, 2016), 81 FR 84696 (November 23, Operating Committee Chair, to Brent J. Fields,
[FR Doc. 2017–12763 Filed 6–19–17; 8:45 am] 2016). On January 30, 2017, the Commission Secretary, Commission, dated May 8, 2017
noticed for immediate effectiveness an amendment (‘‘Transmittal Letter’’).
BILLING CODE 8011–01–P 5 17 CFR 242.608.
to the Plan to add MIAX PEARL, LLC as a
6 See 17 CFR 242.608(a)(4) and (a)(5).
Participant. See Securities Exchange Act Release
17 17 CFR 200.30–3(a)(12). No. 79898, 82 FR 9250 (February 3, 2017). 7 See Transmittal Letter, supra note 4.
VerDate Sep<11>2014 18:01 Jun 19, 2017 Jkt 241001 PO 00000 Frm 00138 Fmt 4703 Sfmt 4703 E:\FR\FM\20JNN1.SGM 20JNN1](https://thefederalregister.org/doc/82_FR_28297/page/1.svg)
![Federal Register / Vol. 82, No. 117 / Tuesday, June 20, 2017 / Notices 28181
fees to collectively recover the costs of Equity Execution Venues with a smaller funding authority to recover the
building and operating the CAT from all market share. Similarly, Options Participants’ costs related to the CAT.’’ 9
CAT Reporters, including Industry Execution Venues with a larger market More specifically, the Commission
Members and Participants. The overall share will pay a larger CAT Fee than stated in approving the CAT NMS Plan
CAT costs for the calculation of the CAT Options Execution Venues with a that ‘‘[t]he Commission believes that the
Fees in this fee filing are comprised of smaller market share. (See Section proposed funding model is reasonably
Plan Processor CAT costs and non-Plan A(2)(C) below) designed to allocate the costs of the CAT
Processor CAT costs incurred, and • Cost Allocation. For the reasons between the Participants and Industry
estimated to be incurred, from discussed below, in designing the Members.’’ 10 The Commission further
November 21, 2016 through November model, the Operating Committee noted the following:
21, 2017. (See Section A(2)(E) below) determined that 75 percent of total costs The Commission believes that the
• Bifurcated Funding Model. The proposed funding model reflects a reasonable
recovered would be allocated to
CAT NMS Plan requires a bifurcated exercise of the Participants’ funding
Industry Members (other than Execution
funding model, where costs associated authority to recover the Participants’ costs
Venue ATSs) and 25 percent would be
with building and operating the CAT related to the CAT. The CAT is a regulatory
allocated to Execution Venues. In
would be borne by (1) Participants and facility jointly owned by the Participants and
addition, the Operating Committee . . . the Exchange Act specifically permits
Industry Members that are Execution
determined to allocate 75 percent of the Participants to charge their members fees
Venues for Eligible Securities through
Execution Venue costs recovered to to fund their self-regulatory obligations. The
fixed tier fees based on market share,
and (2) Industry Members (other than Equity Execution Venues and 25 percent Commission further believes that the
to Options Execution Venues. (See proposed funding model is designed to
alternative trading systems (‘‘ATSs’’) impose fees reasonably related to the
that execute transactions in Eligible Section A(2)(D) below)
Participants’ self-regulatory obligations
Securities (‘‘Execution Venue ATSs’’)) • Comparability of Fees. The CAT because the fees would be directly associated
through fixed tier fees based on message funding model requires that the CAT with the costs of establishing and
traffic for Eligible Securities. (See Fees charged to the CAT Reporters with maintaining the CAT, and not unrelated SRO
Section A(2) below) the most CAT-related activity (measured services.11
• Industry Member Fees. Each by market share and/or message traffic, Accordingly, the funding model
Industry Member (other than Execution as applicable) are generally comparable imposes fees on both Participants and
Venue ATSs) will be placed into one of (where, for these comparability Industry Members.
nine tiers of fixed fees, based on purposes, the tiered fee structure takes
In addition, as discussed in Appendix
‘‘message traffic’’ in Eligible Securities into consideration affiliations between
C of the CAT NMS Plan, the Operating
for a defined period (as discussed or among CAT Reporters, whether
Committee considered the advantages
below). Prior to the start of CAT Execution Venues and/or Industry
and disadvantages of a variety of
reporting, ‘‘message traffic’’ will be Members). (See Section A(2)(F) below)
alternative funding and cost allocation
comprised of historical equity and • Fee Schedule. The quarterly CAT models before selecting the proposed
equity options orders, cancels and Fees for each tier for Participants are set model.12 After analyzing the various
quotes provided by each exchange and forth in the two fee schedules in
FINRA over the previous three months. alternatives, the Operating Committee
proposed Exhibit B to the CAT NMS determined that the proposed tiered,
After an Industry Member begins Plan, one for Execution Venues for NMS
reporting to the CAT, ‘‘message traffic’’ fixed fee funding model provides a
Stocks and OTC Equity Securities and variety of advantages in comparison to
will be calculated based on the Industry one for Execution Venues for Listed
Member’s Reportable Events reported to the alternatives. First, the fixed fee
Options. (See Section A(3) below) model, as opposed to a variable fee
the CAT. Industry Members with lower
levels of message traffic will pay a lower (2) Description of the CAT Funding model, provides transparency, ease of
fee and Industry Members with higher Model calculation, ease of billing and other
levels of message traffic will pay a administrative functions, and
higher fee. (See Section A(2)(B) below) Article XI of the CAT NMS Plan predictability of a fixed fee. Such factors
• Execution Venue Fees. Each Equity requires the Operating Committee to are crucial to estimating a reliable
Execution Venue will be placed in one approve the operating budget, including revenue stream for the Company and for
of two tiers of fixed fees based on projected costs of developing and permitting CAT Reporters to reasonably
market share, and each Options operating the CAT for the upcoming predict their payment obligations for
Execution Venue will be placed in one year. As set forth in Article XI of the budgeting purposes.13 Additionally, a
of two tiers of fixed fees based on CAT NMS Plan, the CAT NMS Plan strictly variable or metered funding
market share. Equity Execution Venue requires a bifurcated funding model, model based on message volume would
market share will be determined by where costs associated with building
calculating each Equity Execution and operating the Central Repository 9 Id. at 84794.
10 Id. at 84795.
Venue’s proportion of the total volume would be borne by (1) Participants and
11 Id. at 84794.
of NMS Stock and OTC Equity shares Industry Members that are Execution 12 Section B.7, Appendix C of the CAT NMS Plan,
reported by all Equity Execution Venues Venues through fixed tier fees based on Approval Order at 85006.
during the relevant time period. market share, and (2) Industry Members 13 In choosing a tiered fee structure, the self-
Similarly, market share for Options (other than Execution Venue ATSs) regulatory organizations concluded that the variety
Execution Venues will be determined by through fixed tier fees based on message of benefits offered by a tiered fee structure,
sradovich on DSK3GMQ082PROD with NOTICES
traffic. In its order approving the CAT discussed above, outweighed the fact that Industry
calculating each Options Execution Members in any particular tier would pay different
Venue’s proportion of the total volume NMS Plan, the Commission determined rates per message traffic order event (e.g., an
of Listed Options contracts reported by that the proposed funding model was Industry Member with the largest amount of
all Options Execution Venues during ‘‘reasonable’’ 8 and ‘‘reflects a message traffic in one tier would pay a smaller
reasonable exercise of the Participants’ amount per order event than an Industry Member
the relevant time period. Equity in the same tier with the least amount of message
Execution Venues with a larger market traffic). Such variation is the natural result of a
share will pay a larger CAT Fee than 8 Approval Order at 84796. tiered fee structure.
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![28182 Federal Register / Vol. 82, No. 117 / Tuesday, June 20, 2017 / Notices
be far more likely to affect market credible justification for using different NMS Plan, the SEC stated that ‘‘[t]he
behavior and place an inappropriate criteria to charge Execution Venues Participants also offered a reasonable
burden on competition. Moreover, as (market share) and Industry Members basis for establishing a funding model
the SEC noted in approving the CAT (message traffic)’’ 19 in the CAT funding based on broad tiers, in that it may be
NMS Plan, ‘‘[t]he Participants also have model. While there are multiple factors . . . less likely to have an incremental
offered a reasonable basis for that contribute to the cost of building, deterrent effect on liquidity
establishing a funding model based on maintaining and using the CAT, provision.’’ 25
broad tiers, in that it be may be easier processing and storage of incoming The CAT NMS Plan is structured to
to implement.’’ 14 message traffic is one of the most avoid potential conflicts raised by the
In addition, multiple reviews of significant cost drivers for the CAT.20 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.21 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.26 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.15 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.22 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.’’ 27 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.16 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.23 about the Plan’s proposed allocation of
The CAT NMS Plan’s funding model profit and loss by mitigating concerns
Reporters in each tier. Therefore,
also is structured to avoid a ‘‘reduction that the Company’s earnings could be
Industry Members generating the most
in market quality.’’ 24 The tiered, fixed used to benefit individual
message traffic will be in the higher
fee funding model is designed to limit Participants.’’ 28
tiers, and therefore be charged a higher
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.17 Correspondingly, Execution CAT. Charging a general regulatory fee,
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
will be in the top tier, and therefore will costs as well as other regulatory costs,
traffic directly as they would under a would be less transparent than the
be charged a higher fee. Execution more directly metered model. In
Venues with a lower market share will selected approach of charging a fee
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 smaller fee for the CAT.18 A full description of the funding
volume were far more likely to affect model is set forth below. This
The Commission also noted in market behavior. In approving the CAT
approving the CAT NMS Plan that description includes the framework for
sradovich on DSK3GMQ082PROD with NOTICES
‘‘[t]he Participants have offered a the funding model as set forth in the
19 Id.
at 84796.
20 Section
CAT NMS Plan, as well as the details as
B.7, Appendix C of the CAT NMS Plan,
14 ApprovalOrder at 84796. Approval Order at 85005. to how the funding model will be
15 Section
B.7, Appendix C of the CAT NMS Plan, 21 Section 11.3(b) of the CAT NMS Plan.
Approval Order at 85006. 22 Section 11.2(c) of the CAT NMS Plan. 25 Approval Order at 84796.
16 Approval Order at 85005. 23 Section B.7, Appendix C of the CAT NMS Plan, 26 Id.at 84792.
17 Id. Approval Order at 85005. 27 26 U.S.C. 501(c)(6).
18 Id. 24 Section 11.2(e) of the CAT NMS Plan. 28 Approval Order at 84793.
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![Federal Register / Vol. 82, No. 117 / Tuesday, June 20, 2017 / Notices 28185
Percentage
Percentage Percentage
of industry
Industry member tier of industry of total
member
members recovery
recovery
Tier 1 ............................................................................................................................................ 0.500 8.50 6.38
Tier 2 ............................................................................................................................................ 2.500 35.00 26.25
Tier 3 ............................................................................................................................................ 2.125 21.25 15.94
Tier 4 ............................................................................................................................................ 4.625 15.75 11.81
Tier 5 ............................................................................................................................................ 3.625 7.75 5.81
Tier 6 ............................................................................................................................................ 4.000 5.25 3.94
Tier 7 ............................................................................................................................................ 17.500 4.50 3.38
Tier 8 ............................................................................................................................................ 20.125 1.50 1.13
Tier 9 ............................................................................................................................................ 45.000 0.50 0.38
Total ...................................................................................................................................... 100 100 75
For the purposes of creating these option cancels received and originated (C) Execution Venue Tiering
tiers based on message traffic, the by a member of an exchange or FINRA Under Section 11.3(a) of the CAT
Operating Committee determined to over a three-month period, excluding NMS Plan, the Operating Committee is
define the term ‘‘message traffic’’ order modifications (e.g., order updates, required to establish fixed fees payable
separately for the period before the order splits, partial cancels). by Execution Venues. Section 1.1 of the
commencement of CAT reporting and Furthermore, prior to the start of CAT CAT NMS Plan defines an Execution
for the period after the start of CAT reporting, quotes would be comprised of Venue as ‘‘a Participant or an alternative
reporting. The different definition for information readily available to the trading system (‘‘ATS’’) (as defined in
message traffic is necessary as there will exchanges and FINRA, such as the total Rule 300 of Regulation ATS) that
be no Reportable Events as defined in operates pursuant to Rule 301 of
number of historical equity and equity
the Plan, prior to the commencement of Regulation ATS (excluding any such
options quotes received and originated
CAT reporting. Accordingly, prior to the ATS that does not execute orders).’’ 32
start of CAT reporting, ‘‘message traffic’’ by a member of an exchange or FINRA
over the prior three-month period. The Participants determined that
will be comprised of historical equity ATSs should be included within the
and equity options orders, cancels and After an Industry Member begins definition of Execution Venue. Given
quotes provided by each exchange and reporting to the CAT, ‘‘message traffic’’ the similarity between the activity of
FINRA over the previous three will be calculated based on the Industry exchanges and ATSs, both of which
months.29 Prior to the start of CAT Member’s Reportable Events reported to meet the definition of an ‘‘exchange’’ as
reporting, orders would be comprised of the CAT as will be defined in the set forth in the Exchange Act and the
the total number of equity and equity Technical Specifications.31 fact that the similar trading models
options orders received and originated would have similar anticipated burdens
The Operating Committee has
by a member of an exchange or FINRA on the CAT, the Participants determined
over the previous three-month period, determined to calculate fee tiers every
three months, on a calendar quarter that ATSs should be treated in the same
including principal orders, cancel/ manner as the exchanges for the
replace orders, market maker orders basis, based on message traffic from the
purposes of determining the level of fees
originated by a member of an exchange, prior three months. Based on its
associated with the CAT.33
and reserve (iceberg) orders as well as analysis of historical data, the Operating Given the differences between
order routes and executions originated Committee believes that calculating tiers Execution Venues that trade NMS
by a member of FINRA, and excluding based on three months of data will Stocks and/or OTC Equity Securities
order rejects and implied orders.30 In provide the best balance between and Execution Venues that trade Listed
addition, prior to the start of CAT reflecting changes in activity by Options, Section 11.3(a) addresses
reporting, cancels would be comprised Industry Members while still providing Execution Venues that trade NMS
of the total number of equity and equity predictability in the tiering for Industry Stocks and/or OTC Equity Securities
Members. Because fee tiers will be separately from Execution Venues that
29 The SEC approved exemptive relief permitting
calculated based on message traffic from trade Listed Options. Equity and
Options Market Maker quotes to be reported to the the prior three months, the Operating Options Execution Venues are treated
Central Repository by the relevant Options
Exchange in lieu of requiring that such reporting be Committee will begin calculating separately for two reasons. First, the
done by both the Options Exchange and the Options message traffic based on an Industry differing quoting behavior of Equity and
Market Maker, as required by Rule 613 of Member’s Reportable Events reported to Options Execution Venues makes
Regulation NMS. See Securities Exchange Act comparison of activity between
Release No. 77265 (Mar. 1, 2017 [sic], 81 FR 11856 the CAT once the Industry Member has
(Mar. 7, 2016). This exemption applies to Options been reporting to the CAT for three Execution Venues difficult. Second,
Market Maker quotes for CAT reporting purposes months. Prior to that, fee tiers will be Execution Venue tiers are calculated
only. Therefore, notwithstanding the reporting
calculated as discussed above with based on market share of share volume,
exemption provided for Options Market Maker and it is therefore difficult to compare
quotes, Options Market Maker quotes will be regard to the period prior to CAT
sradovich on DSK3GMQ082PROD with NOTICES
market share between asset classes (i.e.,
included in the calculation of total message traffic reporting.
for Options Market Makers for purposes of tiering equity shares versus options contracts).
under the CAT funding model both prior to CAT
31 If an Industry Member (other than an Execution
reporting and once CAT reporting commences. 32 Although FINRA does not operate an execution
30 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 33 Section B.7, Appendix C of the CAT NMS Plan,
CAT. fee obligation. Approval Order at 85005.
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Discussed below is how the funding Venue’s NMS Stocks and OTC Equity that, as previously noted, Execution
model treats the two types of Execution Securities market share. In choosing two Venues in many cases have similar
Venues. tiers, the Operating Committee levels of message traffic due to quoting
performed an analysis similar to that activity, and determined that it was
(I) NMS Stocks and OTC Equity
discussed above with regard to the non- simpler and more appropriate to have
Securities
Execution Venue Industry Members to fewer, rather than more, Execution
Section 11.3(a)(i) of the CAT NMS determine the number of tiers for Equity Venue tiers to distinguish between
Plan states that each Execution Venue Execution Venues. The Operating Execution Venues.
that (i) executes transactions or, (ii) in Committee determined to establish two
the case of a national securities The percentage of costs recovered by
tiers for Equity Execution Venues, rather
association, has trades reported by its than a larger number of tiers as each Equity Execution Venue tier will
members to its trade reporting facility or established for non-Execution Venue be determined by predefined percentage
facilities for reporting transactions Industry Members, because the two tiers allocations (the ‘‘Equity Execution
effected otherwise than on an exchange, were sufficient to distinguish between Venue Recovery Allocation’’). In
in NMS Stocks or OTC Equity Securities the smaller number of Equity Execution determining the fixed percentage
will pay a fixed fee depending on the Venues based on market share. allocation of costs recovered for each
market share of that Execution Venue in Furthermore, the incorporation of tier, the Operating Committee
NMS Stocks and OTC Equity Securities, additional Equity Execution Venue tiers considered the impact of CAT Reporter
with the Operating Committee would result in significantly higher fees market share activity on the CAT
establishing at least two and not more for Tier 1 Equity Execution Venues and System as well as the distribution of
than five tiers of fixed fees, based on an diminish comparability between total market volume across Equity
Execution Venue’s NMS Stocks and Execution Venues and Industry Execution Venues while seeking to
OTC Equity Securities market share. For Members. maintain comparable fees among the
these purposes, market share for Each Equity Execution Venue will be largest CAT Reporters. Accordingly,
Execution Venues that execute ranked by market share and tiered by following the determination of the
transactions will be calculated by share predefined Execution Venue percentage of Execution Venues in each
volume, and market share for a national percentages, (the ‘‘Equity Execution tier, the Operating Committee identified
securities association that has trades Venue Percentages’’). In determining the the percentage of total market volume
reported by its members to its trade fixed percentage of Equity Execution for each tier based on the historical
reporting facility or facilities for Venues in each tier, the Operating market share upon which Execution
reporting transactions effected Committee looked at historical market Venues had been initially ranked.
otherwise than on an exchange in NMS share of share volume for execution Taking this into account along with the
Stocks or OTC Equity Securities will be venues. Equities Execution Venue resulting percentage of total recovery,
calculated based on share volume of market share of share volume were the percentage allocation of costs
trades reported, provided, however, that sourced from market statistics made recovered for each tier were assigned,
the share volume reported to such publicly-available by Bats Global allocating higher percentages of
national securities association by an Markets, Inc. (‘‘Bats’’). ATS market recovery to the tier with a higher level
Execution Venue shall not be included share of share volume was sourced from of market share while avoiding any
in the calculation of such national market statistics made publicly- inappropriate burden on competition.
security association’s market share. available by FINRA. FINRA trading [sic] Furthermore, due to the similar levels of
In accordance with Section 11.3(a)(i) reporting facility (‘‘TRF’’) market share impact on the CAT System across
of the CAT NMS Plan, the Operating of share volume was sourced from Execution Venues, there is less variation
Committee approved a tiered fee market statistics made publicly in CAT Fees between the highest and
structure for Equity Execution Venues available by Bats. As indicated by lowest of tiers for Execution Venues.
and Option Execution Venues. In FINRA, ATSs accounted for 37.80% of Furthermore, by using percentages of
determining the Equity Execution the share volume across the TRFs
Venue Tiers, the Operating Committee Equity Execution Venues and costs
during the recent tiering period. A recovered per tier, the Operating
considered the funding principles set 37.80/62.20 split was applied to the
forth in Section 11.2 of the CAT NMS Committee sought to include stability
ATS and non-ATS breakdown of FINRA and elasticity within the funding model,
Plan, seeking to create funding tiers that market share, with FINRA tiered based
take into account the relative impact on allowing the funding model to respond
only on the non-ATS portion of its TRF
system resources of different Equity to changes in either the total number of
market share of share volume.
Execution Venues, and that establish Based on this, the Operating Equity Execution Venues or changes in
comparable fees among the CAT Committee considered the distribution market share.
Reporters with the most Reportable of Execution Venues, and grouped Based on this analysis, the Operating
Events. Each Equity Execution Venue together Execution Venues with similar Committee approved the following
will be placed into one of two tiers of levels of market share of share volume. Equity Execution Venue Percentages
fixed fees, based on the Execution In doing so, the Participants considered and Recovery Allocations:
Percentage Percentage Percentage
of Equity of Execution
Equity Execution Venue tier of total
Execution Venue
sradovich on DSK3GMQ082PROD with NOTICES
recovery
Venues recovery
Tier 1 ............................................................................................................................................ 25.00 26.00 6.50
Tier 2 ............................................................................................................................................ 75.00 49.00 12.25
Total ...................................................................................................................................... 100 75 18.75
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![28194 Federal Register / Vol. 82, No. 117 / Tuesday, June 20, 2017 / Notices
INDUSTRY MEMBER COMPLEXES—Continued
Total fees
Listing of Industry
Industry Member complex Listing of ATS tiers by IM
Member tiers complex
• Tier 7 (x1)
(G) Billing Onset With such reviews, the Operating tiers will not change the criteria for each
Under Section 11.1(c) of the CAT Committee will review the distribution tier or the fee amount corresponding to
NMS Plan, to fund the development and of Industry Members and Execution each tier.
implementation of the CAT, the Venues across tiers, and make any In performing the tri-monthly
Company shall time the imposition and updates to the percentage of CAT reassignments, the percentage of CAT
collection of all fees on Participants and Reporters allocated to each tier as may Reporters in each assigned tier is
Industry Members in a manner be necessary. In addition, the reviews relative. Therefore, a CAT Reporter’s
reasonably related to the timing when will evaluate the estimated ongoing assigned tier will depend, not only on
the Company expects to incur such CAT costs and the level of the operating
its own message traffic or market share,
development and implementation costs. reserve. To the extent that the total CAT
but it also will depend on the message
The Company is currently incurring costs decrease, the fees would be
traffic/market share across all CAT
such development and implementation adjusted downward, and, to the extent
Reporters. For example, the percentage
costs and will continue to do so prior that the total CAT costs increase, the
of Industry Members (other than
to the commencement of CAT reporting fees would be adjusted upward.42
Execution Venue ATSs) in each tier is
and thereafter. For example, the Plan Furthermore, any surplus of the
relative such that such Industry
Processor has required up-front Company’s revenues over its expenses is
Member’s assigned tier will depend on
payments to begin building the CAT. In to be included within the operational
message traffic generated across all CAT
addition, the Company continues to reserve to offset future fees. The
Reporters as well as the total number of
incur consultant and legal expenses on limitations on more frequent changes to
CAT Reporters. The Operating
an on-going basis to implement the the fee, however, are intended to
Committee will inform CAT Reporters
CAT. Accordingly, the Operating provide budgeting certainty for the CAT
of their assigned tier every three months
Committee determined that all CAT Reporters and the Company.43 To the
following the periodic tiering process,
Reporters, including both Industry extent that the Operating Committee
as the funding model will compare an
Members and Execution Venues approves changes to the number of tiers
individual CAT Reporter’s activity to
(including Participants), would begin to in the funding model or the fees
that of other CAT Reporters in the
be invoiced as promptly as possible assigned to each tier, then the Operating
marketplace.
following the establishment of a billing Committee will file such changes with
mechanism. The Operating Committee the SEC pursuant to Rule 608 of the The following demonstrates a tier
will issue a notice to the Participants Exchange Act, and any such changes reassignment. In accordance with the
when the billing mechanism has been will become effective in accordance funding model, the top 75% of Options
established, specifying the date when with the requirements of Rule 608. Execution Venues in market share are
such invoicing of Participants will categorized as Tier 1 while the bottom
(I) Initial and Periodic Tier 25% of Options Execution Venues in
commence. Reassignments market share are categorized as Tier 2.
(H) Changes to Fee Levels and Tiers The Operating Committee has In the sample scenario below, Options
Section 11.3(d) of the CAT NMS Plan determined to calculate fee tiers every Execution Venue L is initially
states that ‘‘[t]he Operating Committee three months based on market share or categorized as a Tier 2 Options
shall review such fee schedule on at message traffic, as applicable, from the Execution Venue in Period A due to its
least an annual basis and shall make any prior three months. For the initial tier market share. When market share is
changes to such fee schedule that it assignments, the Company will recalculated for Period B, the market
deems appropriate. The Operating calculate the relevant tier for each CAT share of Execution Venue L increases,
Committee is authorized to review such Reporter using the three months of data and it is therefore subsequently
fee schedule on a more regular basis, but prior to the commencement date. As reranked and reassigned to Tier 1 in
shall not make any changes on more with the initial tier assignment, for the Period B. Correspondingly, Options
than a semi-annual basis unless, tri-monthly reassignments, the Execution Venue K, initially a Tier 1
pursuant to a Supermajority Vote, the Company will calculate the relevant tier Options Execution Venue in Period A,
Operating Committee concludes that using the three months of data prior to is reassigned to Tier 2 in Period B due
such change is necessary for the the relevant tri-monthly date. Any to decreases in its market share of share
adequate funding of the Company.’’ movement of CAT Reporters between volume.
Period A Period B
Market Market
sradovich on DSK3GMQ082PROD with NOTICES
Options Execution Venue Tier Options Execution Venue Tier
share rank share rank
Options Execution Venue A ............. 1 1 Options Execution Venue A ............ 1 1
42 The CAT Fees are designed to recover the costs regulatory organizations, such as any changes in 43 Section B.7, Appendix C of the CAT NMS Plan,
associated with the CAT. Accordingly, CAT Fees costs related to the retirement of existing regulatory Approval Order at 85006.
would not be affected by increases or decreases in systems, such as OATS.
other non-CAT expenses incurred by the self-
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Period A Period B
Market Market
Options Execution Venue Tier Options Execution Venue Tier
share rank share rank
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 In addition, paragraph (a)(2) of the such fees or other charges to the
proposed Exhibit B states that the sponsors and/or participants).44 At any
The Operating Committee proposes to Company will assign each Execution time within sixty days of the filing of
add Exhibit B to the CAT NMS Plan to Venue for Listed Options to a fee tier this amendment, the Commission may
add a fee schedule setting forth the CAT once every quarter, where such tier summarily abrogate the amendment and
Fees applicable to Participants. assignment is calculated by ranking require that it be refiled pursuant to
Proposed Exhibit B is set forth in each such Execution Venue based on its paragraph (b)(1) [sic] of Rule 608, if it
Appendix A to this letter. Paragraph total market share for the three months appears to the Commission that such
(a)(1) of proposed Exhibit B sets forth prior to the quarterly tier calculation action is necessary or appropriate in the
the CAT Fees applicable to Execution day and assigning each such Execution public interest, for the protection of
Venues for NMS Stocks and OTC Equity Venue to a tier based on that ranking investors or the maintenance of fair and
Securities. Specifically, paragraph (a)(1) and predefined percentages for such orderly markets, to remove impediments
states that the Company will assign each Execution Venues. The Execution to, and perfect the mechanisms of, a
Execution Venue for NMS Stocks and/ Venues for Listed Options with the national market system or otherwise in
or OTC Equity Securities to a fee tier higher total quarterly market share will furtherance of the purposes of the
once every quarter, where such tier be ranked in Tier 1, and such Execution Exchange Act.
assignment is calculated by ranking Venues with the lower quarterly market
D. Development and Implementation
each such Execution Venue based on its share will be ranked in Tier 2.
Phases
total market share for the three months Specifically, paragraph (b)(1) states that,
prior to the quarterly tier calculation each quarter, each Execution Venue for Not applicable.
day and assigning each such Execution Listed Options shall pay in the manner E. Analysis of Impact on Competition
Venue to a tier based on that ranking prescribed by the Company the
following CAT Fee corresponding to the The Operating Committee does not
and predefined percentages for such
tier assigned by the CAT NMS, LLC for believe that the proposed amendment
Execution Venues. The Execution
such Execution Venue for that quarter: will result in any burden on
Venues for NMS Stocks and/or OTC competition that is not necessary or
Equity Securities with the higher total appropriate in furtherance of the
Percentage of
quarterly market share will be ranked in Execution purposes of the Exchange Act. The
Tier 1, and such Execution Venues with Tier Venues for Quarterly Operating Committee notes that the
the lower quarterly market share will be listed CAT fee
options proposed amendment implements
ranked in Tier 2. Specifically, paragraph (%) provisions of the CAT NMS Plan
(a)(1) states that, each quarter, each approved by the Commission, and is
Execution Venue for NMS Stocks and/ 1 ................ 25.00 $57,615 designed to assist the Participants in
or OTC Equity Securities shall pay in 2 ................ 75.00 39,612 meeting their regulatory obligations
the manner prescribed by the Company pursuant to the Plan. Because all
the following CAT Fee corresponding to B. Governing or Constituent Documents national securities exchanges and
the tier assigned by the CAT NMS, LLC Not applicable. FINRA are subject to the proposed CAT
for such Execution Venue for that Fees set forth in the proposed
quarter: C. Implementation of Amendment amendment, this is not a competitive
The terms of the proposed filing that raises competition issues
Percentage of amendment will become effective upon between and among the exchanges and
Execution filing pursuant to Rule 608(b)(3)(i) of the FINRA.
sradovich on DSK3GMQ082PROD with NOTICES
Venues for Quarterly Exchange Act because it establishes a Moreover, as previously described,
Tier NMS stocks CAT fee fee or other charge collected on behalf the Operating Committee believes that
and/or OTC
equity of all of the Participants in connection the proposed fee schedule fairly and
securities with access to, or use of, any facility equitably allocates costs among CAT
contemplated by the plan (including Reporters. In particular, the proposed
1 ................ 25.00 $63,375
2 ................ 75.00 38,820
changes in any provision with respect to
distribution of any net proceeds from 44 17 CFR 242.608(b)(3)(i).
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![28196 Federal Register / Vol. 82, No. 117 / Tuesday, June 20, 2017 / Notices
fee schedule is structured to impose H. Description of Operation of Facility more efficiently, please use only one
comparable fees on similarly situated Contemplated by the Proposed method. The Commission will post all
CAT Reporters, and lessen the impact Amendment comments on the Commission’s Internet
on smaller CAT Reporters. CAT Not applicable. Web site (http://www.sec.gov/rules/
Reporters with similar levels of CAT sro.shtml). Copies of the submission, all
activity will pay similar fees. For I. Terms and Conditions of Access subsequent amendments, all written
example, Industry Members (other than Not applicable. statements with respect to the proposed
Execution Venue ATSs) with higher plan amendment that are filed with the
levels of message traffic will pay higher J. Method of Determination and
Imposition, and Amount of, Fees and Commission, and all written
fees, and those with lower levels of communications relating to the
message traffic will pay lower fees. Charges
amendment between the Commission
Similarly, Execution Venue ATSs and Section A of this letter describes in and any person, other than those that
other Execution Venues with larger detail how the Operating Committee may be withheld from the public in
market share will pay higher fees, and developed the proposed CAT fees, accordance with the provisions of 5
those with lower levels of market share including a detailed discussion of the U.S.C. 552, will be available for Web
will pay lower fees. Therefore, given proposed funding model for the CAT.
site viewing and printing in the
that there is generally a relationship K. Method and Frequency of Processor Commission’s Public Reference Room,
between message traffic and market Evaluation 100 F Street NE., Washington, DC
share to the CAT Reporter’s size, smaller 20549, on official business days
CAT Reporters generally pay less than Not applicable.
between the hours of 10:00 a.m. and
larger CAT Reporters. Accordingly, the L. Dispute Resolution 3:00 p.m. Copies of such filing also will
Operating Committee does not believe Section 11.5 of the CAT NMS Plan be available for inspection and copying
that the CAT Fees would have a addresses the resolution of disputes at the Participants’ offices. All
disproportionate effect on smaller or regarding Participants’ CAT fees comments received will be posted
larger CAT Reporters. In addition, ATSs charged to Participants and Industry without change; the Commission does
and exchanges will pay the same fees Members. Specifically, Section 11.5 not edit personal identifying
based on market share. Therefore, the states that disputes with respect to fees information from submissions. You
Operating Committee does not believe the Company charges Participants should submit only information that
that the fees will impose any burden on pursuant to Article XI of the CAT NMS you wish to make available publicly. All
the competition between ATSs and Plan shall be determined by the submissions should refer to File
exchanges. Accordingly, SRO [sic] Operating Committee or a Number 4–698 and should be submitted
believes that the proposed fees will Subcommittee designated by the
minimize the potential for adverse on or before July 11, 2017.
Operating Committee. Decisions by the
effects on competition between CAT Operating Committee or such By the Commission.
Reporters in the market. designated Subcommittee on such Eduardo A. Aleman,
Furthermore, the tiered, fixed fee matters shall be binding on Participants, Assistant Secretary.
funding model limits the disincentives without prejudice to the rights of any
to providing liquidity to the market. Appendix A
Participant to seek redress from the SEC
Therefore, the proposed fees are pursuant to Rule 608 or in any other [Additions underlined; deletions
structured to limit burdens on appropriate forum. bracketed]
competitive quoting and other liquidity Exhibit B
III. Solicitation of Comments
provision in the market.
Interested persons are invited to CAT Fees
F. Written Understanding or Agreements submit written data, views and (a) Participant CAT Fee Schedule.
Relating to Interpretation of, or arguments concerning the foregoing, (1) CAT Fees: Execution Venues for NMS
Participation in, Plan including whether the amendment is Stocks and/or OTC Equity Securities.
Not applicable. consistent with the Exchange Act. The CAT NMS, LLC will assign each
Comments may be submitted by any of Execution Venue for NMS Stocks and/or OTC
G. Approval by Plan Sponsors in the following methods: Equity Securities to a fee tier once every
Accordance With Plan quarter, where such tier assignment is
Electronic Comments
calculated by ranking each such Execution
Section 12.3 of the Plan states that, • Use the Commission’s Internet Venue based on its total market share for the
subject to certain exceptions, the Plan comment form (http://www.sec.gov/ three months prior to the quarterly tier
may be amended from time to time only rules/sro.shtml); or calculation day and assigning each such
by a written amendment, authorized by • Send an email to rule-comments@ Execution Venue to a tier based on that
the affirmative vote of not less than two- sec.gov. Please include File Number 4– ranking and predefined percentages for such
thirds of all of the Participants, that has 698 on the subject line. Execution Venues. The Execution Venues for
been approved by the SEC pursuant to NMS Stocks and/or OTC Equity Securities
Paper Comments
Rule 608 or has otherwise become with the higher total quarterly market share
effective under Rule 608. In addition, • Send paper comments in triplicate will be ranked in Tier 1, and such Execution
Section 4.3(a)(vi) of the Plan requires to Brent J. Fields, Secretary, Securities
sradovich on DSK3GMQ082PROD with NOTICES
Venues with the lower quarterly market share
the Operating Committee, by Majority and Exchange Commission, 100 F Street will be ranked in Tier 2. Each quarter, each
Vote, to authorize action to determine NE., Washington, DC 20549–1090. Execution Venue for NMS Stocks and/or OTC
the appropriate funding-related policies, All submissions should refer to File Equity Securities shall pay in the manner
procedures and practices-consistent Number 4–698.This file number should prescribed by the CAT NMS, LLC the
with Article XI. The Operating be included on the subject line if email following CAT Fee corresponding to the tier
Committee has satisfied both of these is used. To help the Commission assigned by the CAT NMS, LLC for such
requirements. process and review your comments Execution Venue for that quarter:
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![28198 Federal Register / Vol. 82, No. 117 / Tuesday, June 20, 2017 / Notices
EQUITY EXECUTION VENUE RANK AND TIER—Continued
Market share
of share
Market participant Rank Tier
volume 45
(%)
FNC AG STOCK, LLC ................................................................................................................................. 0.0000225 51 2
AX TRADING, LLC ...................................................................................................................................... 0.0000026 52 2
PRO SECURITIES ATS .............................................................................................................................. 0.0000002 53 2
OPTIONS EXECUTION VENUE RANK AND TIER
Market share
of share
volume
Market participant Rank Tier
(Options
contracts) 46
(%)
NASDAQ PHLX LLC ................................................................................................................................... 16.68 1 1
Chicago Board Options Exchange, Incorporated ........................................................................................ 16.08 2 1
Bats BZX Options Exchange, Inc. ............................................................................................................... 11.53 3 1
Nasdaq ISE, LLC ......................................................................................................................................... 10.63 4 1
NYSE Arca, Inc. ........................................................................................................................................... 9.52 5 1
The NASDAQ Options Market LLC ............................................................................................................. 9.01 6 1
NYSE MKT LLC ........................................................................................................................................... 8.01 7 1
Miami International Securities Exchange, LLC ........................................................................................... 5.84 8 1
Nasdaq GEMX, LLC .................................................................................................................................... 4.16 9 1
Chicago Board Options Exchange, Incorporated 2 ..................................................................................... 3.33 10 1
BOX Options Exchange LLC ....................................................................................................................... 3.02 11 1
Bats EDGX Options Exchange, Inc. ............................................................................................................ 1.31 12 2
NASDAQ BX, Inc. ........................................................................................................................................ 0.67 13 2
Nasdaq MRX, LLC ....................................................................................................................................... 0.21 14 2
MIAX PEARL, LLC ...................................................................................................................................... N/A 47 15 2
change as described in Items I and II The text of the proposed rule change
[FR Doc. 2017–12771 Filed 6–19–17; 8:45 am] below, which Items have been prepared is available at the Exchange’s Web site
BILLING CODE 8011–01–P by the Exchange. The Exchange has at www.batstrading.com, at the
designated this proposal as a ‘‘non- principal office of the Exchange, and at
controversial’’ proposed rule change the Commission’s Public Reference
SECURITIES AND EXCHANGE pursuant to Section 19(b)(3)(A) of the Room.
COMMISSION Act 3 and Rule 19b–4(f)(6)(iii)
II. Self-Regulatory Organization’s
[Release No. 34–80927; File No. SR– thereunder,4 which renders it effective
Statement of the Purpose of, and
BatsBZX–2017–40] upon filing with the Commission. The
Statutory Basis for, the Proposed Rule
Commission is publishing this notice to
Change
Self-Regulatory Organizations; Bats solicit comments on the proposed rule
BZX Exchange, Inc.; Notice of Filing change from interested persons. In its filing with the Commission, the
and Immediate Effectiveness of a Exchange included statements
I. Self-Regulatory Organization’s concerning the purpose of and basis for
Proposed Rule Change to Rule 21.5 of
Statement of the Terms of Substance of the proposed rule change and discussed
Bats BZX Exchange, Inc. To Extend
the Proposed Rule Change any comments it received on the
Through December 31, 2017, the Penny
Pilot Program in Options Classes in The Exchange filed a proposal to proposed rule change. The text of these
Certain Issues extend through December 31, 2017, the statements may be examined at the
Penny Pilot Program (‘‘Penny Pilot’’) in places specified in Item IV below. The
June 14, 2017. Exchange has prepared summaries, set
options classes in certain issues (‘‘Pilot
Pursuant to Section 19(b)(1) of the forth in Sections A, B, and C below, of
Program’’) previously approved by the
Securities Exchange Act of 1934 (the the most significant parts of such
Commission.5
‘‘Act’’),1 and Rule 19b–4 thereunder,2 statements.
notice is hereby given that on June 13,
2017, Bats BZX Exchange, Inc. (the
3 15U.S.C. 78s(b)(3)(A). (A) Self-Regulatory Organization’s
‘‘Exchange’’ or ‘‘BZX’’) filed with the
4 17CFR 240.19b–4(f)(6)(iii). Statement of the Purpose of, and
5 The rules of BZX Options, including rules
Securities and Exchange Commission Statutory Basis for, the Proposed Rule
applicable to BZX Options’ participation in the
sradovich on DSK3GMQ082PROD with NOTICES
(‘‘Commission’’) the proposed rule Penny Pilot, were approved on January 26, 2010.
Change
See Securities Exchange Act Release No. 61419 1. Purpose
46 Based
(January 26, 2010), 75 FR 5157 (February 1, 2010)
on November 2016 through January 2017 (SR–BATS–2009–031). BZX Options commenced The purpose of this filing is to extend
volume sourced from Bats. operations on February 26, 2010. The Penny Pilot
47 No market statistics as of January 2017. the Penny Pilot, which was previously
was most recently extended for BZX Options
Launched trading operations on February 6, 2017. through June 30, 2017. See Securities Exchange Act
approved by the Commission, through
1 15 U.S.C. 78s(b)(1).
Release No. 34–79523 (December 9, 2016), 81 FR December 31, 2017, and to provide
2 17 CFR 240.19b–4. 90895 (December 16, 2016) (SR-BatsBZX–2016–84). revised dates for adding replacement
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Document Created: 2017-06-20 02:20:33
Document Modified: 2017-06-20 02:20:33
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 28180 |
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