82 FR 31656 - Self-Regulatory Organizations; 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. and NYSE MKT LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Changes To Establish Fees for Industry Members To Fund the Consolidated Audit Trail
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 129 (July 7, 2017)
Federal Register Volume 82, Issue 129 (July 7, 2017)
| Page Range | 31656-31668 | |
| FR Document | 2017-14245 |
[Federal Register Volume 82, Number 129 (Friday, July 7, 2017)] [Notices] [Pages 31656-31668] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-14245] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81067; File Nos. SR-BatsBYX-2017-11; SR-BatsBZX-2017- 38; SR-BatsEDGA-2017-13; SR-BatsEDGX-2017-22; SR-BOX-2017-16; SR-BX- 2017-023; SR-C2-2017-017; SR-CBOE-2017-040; SR-CHX-2017-08; SR-FINRA- 2017-011; SR-GEMX-2017-17; SR-IEX-2017-16; SR-ISE-2017-45; SR-MIAX- 2017-18; SR-MRX-2017-04; SR-NASDAQ-2017-046; SR-NYSE-2017-22; SR- NYSEArca-2017-52; SR-NYSEMKT-2017-26; SR-PEARL-2017-20; SR-PHLX-2017- 37] Self-Regulatory Organizations; 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. and NYSE MKT LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Changes To Establish Fees for Industry Members To Fund the Consolidated Audit Trail June 30, 2017. I. Introduction On May 1, 2017,\1\ May 2, 2017,\2\ May 3, 2017,\3\ May 8, 2017,\4\ May 9, 2017,\5\ May 10, 2017,\6\ May 12, 2017,\7\ May 15, [[Page 31657]] 2017,\8\ May 16, 2017,\9\ and May 23, 2017,\10\ Bats BYX Exchange, Inc. (``Bats BYX''), Bats BZX Exchange, Inc. (``Bats BZX''), Bats EDGA Exchange, Inc. (``Bats EDGA''), Bats EDGX Exchange, Inc. (``Bats EDGX''), BOX Options Exchange LLC (``BOX''), C2 Options Exchange, Incorporated (``C2''), Chicago Board Options Exchange, Incorporated (``CBOE''), Chicago Stock Exchange, Inc. (``CHX''), Financial Industry Regulatory Authority, Inc. (``FINRA''), Investors' Exchange LLC (``IEX''), Nasdaq ISE, LLC (``ISE''), Miami International Securities Exchange, LLC (``MIAX''), MIAX PEARL, LLC (``PEARL''), NASDAQ BX, Inc. (``BX''), Nasdaq GEMX, LLC (``GEMX''), Nasdaq MRX, LLC (``MRX''), NASDAQ PHLX LLC (``Phlx''), The Nasdaq Stock Market LLC (``Nasdaq''), New York Stock Exchange LLC (``NYSE''), NYSE Arca, Inc. (``NYSE Arca'') and NYSE MKT LLC (``NYSE MKT'') (collectively, the ``Participants'') filed with the Securities and Exchange Commission (the ``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \11\ and Rule 19b-4 thereunder,\12\ proposed rule changes to adopt fees to be charged to Industry Members \13\ to fund the consolidated audit trail (``CAT'').\14\ The proposed rule changes were immediately effective upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Act.\15\ The proposed rule changes submitted by MIAX and PEARL were published for comment in the Federal Register on May 19, 2017.\16\ The proposed rule changes submitted by BX, CHX, IEX, Nasdaq, NYSE, NYSE Arca and NYSE MKT were published for comment in the Federal Register on May 22, 2017.\17\ The proposed rule change submitted by FINRA was published for comment in the Federal Register on May 23, 2017.\18\ The proposed rule changes submitted by BOX, GEMX, ISE, MRX and Phlx were published for comment in the Federal Register on May 24, 2017.\19\ The proposed rule changes submitted by C2, CBOE and Bats EDGA were published for comment in the Federal Register on June 1, 2017.\20\ The proposed rule change submitted by Bats BYX was published for comment in the Federal Register on June 5, 2017.\21\ The proposed rule changes submitted by Bats BZX and Bats EDGX were published for comment in the Federal Register on June 6, 2017.\22\ The Commission has received a number of comment letters on the proposed rule changes, and a response to comments from the Participants.\23\ --------------------------------------------------------------------------- \1\ Miami International Securities Exchange, LLC and MIAX PEARL LLC filed their proposed rule changes on May 1, 2017. \2\ The NASDAQ Stock Market LLC and NASDAQ BX, Inc. filed their proposed rule changes on May 2, 2017. \3\ Chicago Stock Exchange, Inc. filed its proposed rule change on May 3, 2017. \4\ Financial Industry Regulatory Authority, Inc. filed its proposed rule change on May 8, 2017. \5\ Investors' Exchange LLC originally filed its proposed rule change on May 3, 2017 under File No. SR-IEX-2017-13, and subsequently withdrew that filing and filed this proposed rule change on May 9, 2017. \6\ The New York Stock Exchange LLC, NYSE Arca, Inc. and NYSE MKT LLC filed their proposed rule changes on May 10, 2017. \7\ NASDAQ GEMX LLC, NASDAQ ISE, LLC, NASDAQ MRX, LLC and NASDAQ PHLX LLC originally filed their proposed rule changes on May 3, 2017 under File Nos. SR-GEMX-2017-11, SR-ISE-2017-40, SR-MRX-2017-03, and SR-PHLX-2017-35, and subsequently withdrew those filings and filed these proposed rule changes on May 12, 2017. \8\ BOX Options Exchange LLC originally filed its proposed rule change on May 11, 2017 under File No. SR-BOX-2017-15, and subsequently withdrew that filing and filed this proposed rule change on May 15, 2017. \9\ Bats BYX Exchange, Inc., C2 Options Exchange, Incorporated and Chicago Board Options Exchange, Incorporated filed their proposed rule changes on May 16, 2017. Bats EDGA Exchange, Inc. originally filed its proposed rule change on May 5, 2017 under File No. SR-BatsEDGA-2017-11, and subsequently withdrew that filing on May 11, 2017 and filed this proposed rule change on May 16, 2017. \10\ Bats BZX Exchange, Inc. filed its proposed rule changes on May 23, 2017. Bats EDGX Exchange, Inc. originally filed its proposed rule change on May 5, 2017 under File No. SR-BatsEDGX-2017-20, and subsequently withdrew that filing on May 10, 2017 and filed this proposed rule change on May 23, 2017. \11\ 15 U.S.C. 78s(b)(1). \12\ 17 CFR 240.19b-4. \13\ Section 1.1 of the CAT NMS Plan defines ``Industry Member'' as ``a member of a national securities exchange or a member of a national securities association.'' \14\ See infra notes 16-22. \15\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take effect upon filing with the Commission if it is designated by the exchange as ``establishing or changing a due, fee, or other charge imposed by the self-regulatory organization on any person, whether or not the person is a member of the self-regulatory organization.'' 15 U.S.C. 78s(b)(3)(A)(ii). \16\ See Securities Exchange Act Release Nos. 80675 (May 15, 2017), 82 FR 23100 (May 19, 2017) (SR-MIAX-2017-18) (``Notice''); and 80676 (May 15, 2017), 82 FR 23083 (May 19, 2017) (SR-PEARL-2017- 20). \17\ Securities Exchange Act Release Nos. 80697 (May 16, 2017), 82 FR 23398 (May 22, 2017) (SR-BX-2017-023); 80691 (May 16, 2017), 82 FR 23344 (May 22, 2017) (SR-CHX-2017-08); 80692 (May 16, 2017), 82 FR 23325 (May 22, 2017) (SR-IEX-2017-16); 80696 (May 16, 2017), 82 FR 23439 (May 22, 2017) (SR-NASDAQ-2017-046); 80693 (May 16, 2017), 82 FR 23363 (May 22, 2017) (SR-NYSE-2017-22); 80698 (May 16, 2017), 82 FR 23457 (May 22, 2017) (SR-NYSEArca-2017-52); and 80694 (May 16, 2017), 82 FR 23416 (May 22, 2017) (SR-NYSEMKT-2017-26). \18\ See Securities Exchange Act Release No. 80710 (May 17, 2017), 82 FR 23639 (May 23, 2017) (SR-FINRA-2017-011). \19\ See Securities Exchange Act Release Nos. 80721 (May 18, 2017), 82 FR 23864 (May 24, 2017) (SR-BOX-2017-16); 80713 (May 18, 2017), 82 FR 23956 (May 24, 2017) (SR-GEMX-2017-17); 80715 (May 18, 2017), 82 FR 23895 (May 24, 2017) (SR-ISE-2017-45); 80726 (May 18, 2017), 82 FR 23915 (May 24, 2017) (SR-MRX-2017-04); and 80725 (May 18, 2017), 82 FR 23935 (May 24, 2017) (SR-PHLX-2017-37). \20\ Securities Exchange Act Release Nos. 80786 (May 26, 2017), 82 FR 25474 (June 1, 2017) (SR-C2-2017-017); 80785 (May 26, 2017), 82 FR 25404 (June 1, 2017) (SR-CBOE-2017-040); and 80784 (May 26, 2017), 82 FR 25448 (June 1, 2017) (SR-BatsEDGA-2017-13). \21\ See Securities Exchange Act Release No. 80809 (May 30, 2017), 82 FR 25837 (June 5, 2017) (SR-BatsBYX-2017-11). \22\ See Securities Exchange Act Release Nos. 80822 (May 31, 2017), 82 FR 26148 (June 6, 2017) (SR-BatsBZX-2017-38); and 80821 (May 31, 2017), 82 FR 26177 (June 6, 2017) (SR-BatsEDGX-2017-22). \23\ Since the proposed rule changes are designed to adopt fees to be charged to Industry Members to fund CAT, the Commission is considering all comments received regardless of the comment file to which they were submitted. See Letter from Theodore R. Lazo, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association, to Brent J. Fields, Secretary, Commission (dated June 6, 2017) (``SIFMA Letter''), available at: https://www.sec.gov/comments/sr-batsbzx-2017-38/batsbzx201738-1788188-153228.pdf; Letter from Patricia L. Cerny and Steven O'Malley, Compliance Consultants, to Brent J. Fields, Secretary, Commission (dated June 12, 2017) (``Cerny & O'Malley Letter''), available at: https://www.sec.gov/comments/sr-cboe-2017-040/cboe2017040-1799253-153675.pdf; Letter from Daniel Zinn, General Counsel, OTC Markets Group Inc., to Eduardo A. Aleman, Assistant Secretary, Commission (dated June 13, 2017) (``OTC Markets Letter''), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-1801717-153703.pdf; Letter from Joanna Mallers, Secretary, FIA Principal Traders Group, to Brent J. Fields, Secretary, Commission (dated June 22, 2017) (``FIA Letter''), available at: https://www.sec.gov/comments/sr-cboe-2017-040/cboe2017040-1819670-154195.pdf; Letter from Stuart J. Kaswell, Executive Vice President and Managing Director, General Counsel, Managed Funds Association, to Brent J. Fields, Secretary, Commission (dated June 23, 2017) (``MFA Letter''), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-1822454-154283.pdf; and Letter from Suzanne H. Shatto, Investor, to Commission (dated June 27, 2017) (``Shatto Letter''), available at: https://www.sec.gov/comments/sr-batsedgx-2017-22/batsedgx201722-154443.pdf. The Commission also received a comment letter which is not pertinent to these proposed rule changes. See Letter from Christina Crouch, Smart Ltd., to Brent J. Fields, Secretary, Commission (dated June 5, 2017) (``Smart Letter''), available at: https://www.sec.gov/comments/sr-batsbzx-2017-38/batsbzx201738-1785545-153152.htm. The Commission also has received a letter from the Participants responding to the comments received. See Letter from CAT NMS Plan Participants to Brent J. Fields, Secretary, Commission (dated June 29, 2017) (``Response from Participants''), available at https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-1832632-154584.pdf. --------------------------------------------------------------------------- Pursuant to Section 19(b)(3)(C) of the Act, the Commission is hereby: (1) temporarily suspending the proposed rule changes; and (2) instituting proceedings to determine whether to approve or disapprove the proposals. II. Summary of the Proposed Rule Change Prior to filing the proposed rule changes, the Participants and NYSE National, Inc.\24\ filed with the Commission, pursuant to Section 11A of the Exchange Act \25\ and Rule 608 of Regulation NMS thereunder,\26\ a national market system (``NMS'') plan to create, implement and maintain the CAT (the ``CAT NMS Plan'' or the ``Plan'').\27\ The Plan was published for [[Page 31658]] comment in the Federal Register on May 17, 2016,\28\ and approved by the Commission, as modified, on November 15, 2016.\29\ Under the CAT NMS Plan, the Operating Committee of a newly formed company--CAT NMS, LLC (the ``Company''), of which each Participant is a member--has the discretion to establish funding for the Company to operate the CAT, including establishing fees that the Participants and Industry Members will pay (``CAT Fees'').\30\ --------------------------------------------------------------------------- \24\ NYSE National, Inc. ceased trading on February 1, 2017. See Securities Exchange Act Release No. 80018 (February 10, 2017), 82 FR 10947 (February 16, 2017) (SR-NSX-2017-04). Therefore, it did not submit a proposed rule change to adopt fees on Industy Members to fund CAT. \25\ 15 U.S.C. 78k-1. \26\ 17 CFR 242.608. \27\ See Letter from the Participants to Brent J. Fields, Secretary, Commission, dated September 30, 2014; and Letter from Participants to Brent J. Fields, Secretary, Commission, dated February 27, 2015. On December 23, 2015, the Participants submitted an amendment to the CAT NMS Plan. See Letter from Participants to Brent J. Fields, Secretary, Commission, dated December 23, 2015. \28\ Securities Exchange Act Release No. 77724 (April 27, 2016), 81 FR 30614 (May 17, 2016) (``CAT NMS Plan Notice''). \29\ Securities Exchange Act Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016) (``Approval Order''). \30\ Section 11.1(b) of the CAT NMS Plan. --------------------------------------------------------------------------- The Plan specified that, in establishing the funding of the Company, the Operating Committee shall 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; and (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 Venues and/or Industry Members).'' \31\ Under the Plan, such fees are to be implemented in accordance with various funding principles, including an ``allocation of the Company's related costs among Participants and Industry Members that is consistent with the Exchange Act taking into account . . . distinctions in the securities trading operations of Participants and Industry Members and their relative impact upon the Company resources and operations'' and the ``avoid[ance of] any disincentives such as placing an inappropriate burden on competition and reduction in market quality.'' \32\ --------------------------------------------------------------------------- \31\ Section 11.2(c) of the CAT NMS Plan. See Article XI of the CAT NMS Plan for additional detail; see also, e.g., Notice, supra note 16, at 23102-04 for additional description of the CAT NMS Plan requirements. \32\ See Section 11.2(b) and (e) of the CAT NMS Plan. --------------------------------------------------------------------------- To establish CAT Fees, the Participants submitted the proposed rule changes. As noted above, the proposed rule changes adopt fees to be charged to Industry Members, including Industry Members that are Execution Venue ATSs, which are described below.\33\ The Participants also submitted an amendment to the Plan on May 23, 2017 \34\ to establish the CAT Fees to be charged to themselves.\35\ --------------------------------------------------------------------------- \33\ For additional details regarding these fees, see, e.g., Notice, supra note 16. \34\ The Participants initially submitted the amendment on May 9, 2017, but subsequently withdrew the amendment and refiled the current submission on May 23, 2017. \35\ See Securities Exchange Act Release No. 80930 (June 14, 2017), 82 FR 28180 (June 20, 2017). --------------------------------------------------------------------------- A. Industry Member Tiers The proposed rule changes establish fixed fees to be payable by Industry Members, based on message traffic.\36\ Under the proposed rule changes, each Industry Member (other than Execution Venue ATSs \37\) will be ranked by message traffic and assigned to one of nine tiers that have been predefined by percentages (the ``Industry Member Percentages'').\38\ The Participants noted that the percentage of costs recovered by each Industry Member tier will be determined by predefined percentage allocations (the ``Industry Member Recovery Allocation'').\39\ --------------------------------------------------------------------------- \36\ The CAT NMS Plan provides that the CAT Fees payable by Industry Members shall include message traffic generated by: (i) An ATS that does not execute orders that is sponsored by an Industry Member and (ii) routing orders to and from any ATS sponsored by an Industry Member. See Section 11.3(b) of the CAT NMS Plan. The Participants noted, however, that Industry Member fees will not be applicable to an ATS that qualifies as an Execution Venue. See, e.g., Notice, supra note 16, at 23104. \37\ The Participants defined ``Execution Venue ATSs'' as alternative trading systems that execute transactions in Eligible Securities. See, e.g., Notice, supra note 16, at 23101. \38\ See, e.g., id. at 23104. \39\ See, e.g., id. --------------------------------------------------------------------------- The following table sets forth the specific Industry Member Percentages and Industry Member Recovery Allocations: \40\ --------------------------------------------------------------------------- \40\ See, e.g., id. at 23105-06. ---------------------------------------------------------------------------------------------------------------- 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 ---------------------------------------------------------------------------------------------------------------- The Participants explained that, 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.\41\ The Participants stated that prior to the start of CAT reporting, (1) orders will 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, as well as order routes and executions originated by a member of FINRA, (2) cancels will 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, and (3) quotes will 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.\42\ After an Industry [[Page 31659]] Member begins reporting to the CAT, the Participants noted that ``message traffic'' will be calculated based on the Industry Member's Reportable Events.\43\ --------------------------------------------------------------------------- \41\ See, e.g., id. at 23106. The Commission approved exemptive relief allowing 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. See Securities Exchange Act Release No. 77265 (March 1, 2017), 81 FR 11856 (March 7, 2016). The Participants stated that this exemption applies to options market- maker quotes for CAT reporting purposes only. Therefore, the Participants indicated that options market-maker quotes will be included in the calculation of total message traffic for options market-maker under their proposed rule changes. See, e.g., Notice, supra note 16, at 23106 n.36. \42\ See, e.g., id. at 23106. \43\ See, e.g., id. 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, the Participants stated that the Industry Member would not have a CAT Fee obligation. See, e.g., id. at n. 38. --------------------------------------------------------------------------- B. Execution Venue Tiers For purposes of determining the CAT Fees for ATSs, the Participants categorized ATSs (excluding ATSs that do not execute orders) as Execution Venues.\44\ Furthermore, the proposed rule changes set different tiers for Equity and Options Execution Venues. --------------------------------------------------------------------------- \44\ See, e.g., id. at 23106. Section 1.1 of the CAT NMS Plan defines ``Execution Venue'' as ``a Participant or an [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).'' --------------------------------------------------------------------------- 1. NMS Stocks and OTC Equity Securities The proposed rule changes establish fixed fees to be paid by Execution Venues depending on the market share of that Execution Venue in NMS Stocks and OTC Equity Securities. Market share for Execution Venues will be calculated by share volume, except the 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, excluding the share volume reported to such national securities association by an Execution Venue.\45\ --------------------------------------------------------------------------- \45\ Section 11.3(a)(i) of the CAT NMS Plan; see also, e.g., Notice, supra note 16, at 23106-07. --------------------------------------------------------------------------- Under the proposed rule changes, each Equity Execution Venue will be ranked by market share and assigned to one of two tiers that have been predefined by percentages (the ``Equity Execution Venue Percentages'').\46\ The Participants noted that the percentage of costs recovered by each Equity Execution Venue tier will be determined by predefined percentage allocations (the ``Equity Execution Venue Recovery Allocation'').\47\ --------------------------------------------------------------------------- \46\ See, e.g., Notice, supra note 16, at 23107. \47\ See, e.g., id. --------------------------------------------------------------------------- The following table sets forth the specific Equity Execution Venue Percentages and Equity Execution Recovery Allocations: \48\ --------------------------------------------------------------------------- \48\ See, e.g., id. ---------------------------------------------------------------------------------------------------------------- Percentage of Percentage of equity execution Percentage of Equity execution venue tier execution venue total recovery venues recovery ---------------------------------------------------------------------------------------------------------------- Tier 1.......................................................... 25.00 26.00 6.50 Tier 2.......................................................... 75.00 49.00 12.25 ----------------------------------------------- Total....................................................... 100 75 18.75 ---------------------------------------------------------------------------------------------------------------- 2. Listed Options The proposed rule changes establish fixed fees to be paid by Execution Venues depending on the Listed Options market share of that Execution Venue. Market share for Execution Venues will be calculated by contract volume.\49\ Under the proposed rule changes, each Options Execution Venue will be ranked by market share and assigned to one of two tiers that have been predefined by percentages (the ``Options Execution Venue Percentages'').\50\ The Participants noted that the percentage of costs recovered by each Options Execution Venue tier will be determined by predefined percentage allocations (the ``Options Execution Venue Recovery Allocation'').\51\ --------------------------------------------------------------------------- \49\ Section 11.3(a)(ii) of the CAT NMS Plan; see also, e.g., Notice, supra note 16, at 23108. \50\ See, e.g., Notice, supra note 16, at 23108. \51\ See, e.g., id. --------------------------------------------------------------------------- The following table sets forth the specific Options Execution Venue Percentages and Options Execution Venue Recovery Allocations: \52\ --------------------------------------------------------------------------- \52\ See, e.g., id. ---------------------------------------------------------------------------------------------------------------- Percentage of Percentage of options execution Percentage of Options execution venue tier execution venue total recovery venues recovery ---------------------------------------------------------------------------------------------------------------- Tier 1.......................................................... 75.00 20.00 5.00 Tier 2.......................................................... 25.00 5.00 1.25 ----------------------------------------------- Total....................................................... 100 25 6.25 ---------------------------------------------------------------------------------------------------------------- 3. Tier Assignments The Participants stated that market share for Execution Venues will be sourced from data reported to the CAT System after the commencement of CAT reporting.\53\ Prior to the commencement of CAT reporting, the Participants stated that market share for Execution Venues will be sourced from publicly-available market data, including data made publicly available by Bats and FINRA.\54\ --------------------------------------------------------------------------- \53\ See, e.g., id. \54\ See, e.g., id. --------------------------------------------------------------------------- C. Allocation of Costs In determining the cost allocation between Industry Members (other than Execution Venue ATSs) and Execution Venues, the Participants stated that the Operating Committee decided that 75% of total costs recovered will be allocated to Industry Members (other than Execution Venue ATSs) and 25% will be allocated to Execution Venues.\55\ In determining the cost allocation between Equity Execution Venues and Options Execution Venues, the Participants stated that the Operating Committee further determined to allocate 75% of Execution Venue costs recovered to Equity Execution Venues and 25% to Options Execution Venues.\56\ --------------------------------------------------------------------------- \55\ See, e.g., id. at 23109. \56\ See, e.g., id. --------------------------------------------------------------------------- D. Fee Levels The Participants explained that the sum of the CAT Fees is designed to [[Page 31660]] recover the total costs of building and operating the CAT. They stated that the Operating Committee has estimated overall CAT costs--including development and operational costs, third-party support costs (including historic legal fees, consulting fees, and audit fees), insurance costs, and operational reserve costs--to be $50,700,000 in total for the year beginning November 21, 2016.\57\ The Participants stated that, based on the estimated costs and the calculations for the funding model, the Operating Committee determined to impose the following fees. --------------------------------------------------------------------------- \57\ See, e.g., id. The Participants further noted that CAT- related costs incurred prior to November 21, 2016 will be addressed via a separate fee filing. See, e.g., id. at n.41. --------------------------------------------------------------------------- For Industry Members (other than Execution Venue ATSs): \58\ --------------------------------------------------------------------------- \58\ See, e.g., id. at 23110. ---------------------------------------------------------------------------------------------------------------- Monthly CAT Quarterly CAT CAT fees paid Tier fee fee annually ---------------------------------------------------------------------------------------------------------------- 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 Equity Execution Venues: \59\ --------------------------------------------------------------------------- \59\ See, e.g., id. ---------------------------------------------------------------------------------------------------------------- Monthly CAT Quarterly CAT CAT fees paid Tier fee fee annually ---------------------------------------------------------------------------------------------------------------- 1............................................................... $21,125 $63,375 $253,500 2............................................................... 12,940 38,820 155,280 ---------------------------------------------------------------------------------------------------------------- For Options Execution Venues: \60\ --------------------------------------------------------------------------- \60\ See, e.g., id. ---------------------------------------------------------------------------------------------------------------- Monthly CAT Quarterly CAT CAT fees paid Tier fee fee annually ---------------------------------------------------------------------------------------------------------------- 1............................................................... $19,205 $57,615 $230,460 2............................................................... 13,204 39,612 158,448 ---------------------------------------------------------------------------------------------------------------- E. Changes to Fee Levels and Tiers The Participants noted that 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.'' \61\ The Participants stated that, as part of 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.\62\ In addition, the Participants asserted that such reviews would consider the estimated ongoing CAT costs and the level of the operating reserve, in order to adjust CAT Fees as appropriate.\63\ The Participants further stated that any changes to the CAT Fees will be filed with the Commission pursuant to Section 19(b) of the Exchange Act and become effective in accordance with the requirements of Section 19(b).\64\ --------------------------------------------------------------------------- \61\ See, e.g., id. at 23115. \62\ See, e.g., id. \63\ See, e.g., id. The Participants further noted that any surplus of the Company's revenues over its expenses will be included within the operational reserve to offset future fees. See, e.g., id. \64\ See, e.g., id. --------------------------------------------------------------------------- F. Initial and Periodic Tier Reassignments Under the proposed rule changes, the Operating Committee will assign fee tiers every three months based on market share or message traffic, as applicable, from the prior three months.\65\ For the initial tier assignments, the Participants stated that the Company will calculate the relevant tier for each CAT Reporter using the prior three months of data.\66\ The Participants explained the Company will calculate subsequent tier assignments using the three months of data prior to the relevant tri-monthly date.\67\ The Participants noted that any movement of CAT Reporters between tiers will not change the criteria for each tier or the fee amount corresponding to each tier.\68\ According to the Participants, a CAT Reporter's assigned tier will depend not only on its own message traffic or market share, but also on the message traffic or market share across all CAT Reporters.\69\ --------------------------------------------------------------------------- \65\ See, e.g., id. \66\ See, e.g., id. The Participants indicated that such data will be comprised of historical equity and equity options orders, cancels, and quotes provided by the Participants over the previous three-month period. See, e.g., id.; see also notes 41-43 supra and accompanying text. \67\ See, e.g., Notice, supra note 16, at 23115. \68\ See, e.g., id. \69\ See, e.g., id. --------------------------------------------------------------------------- G. Timing and Manner of Payment The proposed rule changes state that the Company will provide each Industry Member with one invoice each quarter for its CAT Fees, regardless of whether the Industry Member is a member of multiple Participants.\70\ The proposed rule changes further state that each Industry Member will pay its CAT Fees to the Company via the centralized system for the collection of CAT Fees established by the Company in the [[Page 31661]] manner prescribed by the Company.\71\ The proposed rule changes also state that each Industry Member shall pay its CAT Fees within thirty days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated).\72\ If an Industry Member fails to pay any such fee when due, the proposed rule changes require such Industry Member to pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of: (i) The Prime Rate plus 300 basis points; or (ii) the maximum rate permitted by applicable law.\73\ --------------------------------------------------------------------------- \70\ See, e.g., id. at 23116. \71\ See, e.g., id. The Participants acknowledged, however, that no exact fee collection system has yet been established. See, e.g., id. at 23117. \72\ See, e.g., id. \73\ See, e.g., id. --------------------------------------------------------------------------- III. Summary of Comments As noted above, the Commission received a number of comment letters on the proposed rule changes \74\ objecting to the proposals.\75\ --------------------------------------------------------------------------- \74\ See supra note 23. In addition, SIFMA attaches its July 18, 2016 letter regarding the proposed CAT NMS Plan. See Letter from Theodore R. Lazo, Managing Director and Associate General Counsel, and Ellen Greene, Managing Director, Financial Services Operations, to Brent J. Fields, Secretary, Commission (dated July 18, 2016), available at: https://www.sec.gov/comments/sr-batsbzx-2017-38/batsbzx201738-1788188-153228.pdf. This letter advances many of the same arguments described below, as well as some additional arguments--namely, that: (1) Any funding mechanism for the CAT should be centralized; (2) allocating costs to Industry Members based on message traffic may disadvantage market-makers and broker- dealers who provide liquidity, as compared to those who take liquidity; (3) the Participants should implement a user fee in connection with the use of the CAT for regulatory purposes; (4) the CAT NMS Plan does not distinguish between costs of the CAT associated with collection and processing of data reported by broker-dealers as opposed to costs of the CAT designed to support SRO regulatory uses (noting that allocating costs of the CAT based on message traffic or market share would result in broker-dealers subsidizing the costs of surveillance systems and functions paid for by the Participants through regulatory fees that they already charge their members); (5) the Participants must substantiate the need for a CAT Fee in addition to current regulatory fees; and (6) funding for the CAT system should come through cost savings realized by the Participants from the retirement of old audit trail systems. Id. at 12-19. The Participants responded to these previously-expressed concerns in their response letter. The Participants state that (1) the CAT fee filings will implement a centralized approach to billing through the provision to each Industry Member of one invoice per quarter for CAT fees, regardless of the number of SROs to which the Industry Member belongs (see Response from Participants, supra note 23, at 9); (2) their choice of a tiered, fixed fee funding model would limit disincentives to providing liquidity as compared to strictly variable or metered funding models (see id. at 10); (3) the CAT NMS Plan authorizes a usage fee, but that it is premature to establish it (see id. at 8-9); (4) data ingestion and processing are primary drivers of the CAT costs, and therefore they believe that data processing is a reasonable basis for assessing CAT Fees (see id. at 8); (5) Rule 613 of Regulation NMS specifically contemplates broker-dealers contributing to the funding of the CAT and the Commission permitted the Participants to recover at least some of the CAT costs from their members (see id. at 3-4); and (6) the Participants have filed proposed rule changes to retire duplicative systems as required by the CAT NMS Plan and that once the Participants become more familiar with the CAT and have revised their surveillance methods, they will review their fees and determine whether to revise such fees (see id. at 9-10, 12). \75\ See SIFMA Letter; Cerny & O'Malley Letter; OTC Markets Letter; FIA Letter; MFA Letter; Shatto Letter, supra note 23. The Commission notes that the Shatto Letter agrees with the views expressed in SIFMA's letter and that the Smart Letter discusses concerns that are not pertinent to the proposed rule changes. Accordingly, those two letters are not further discussed in this section. --------------------------------------------------------------------------- Necessity of the CAT One commenter asks whether the CAT is a ``worthwhile endeavor,'' \76\ arguing that the CAT is largely duplicative of existing electronic audit trails, and suggesting that the goals of the CAT can be accomplished at a fraction of the cost set forth in the filings.\77\ The commenter also believes that the CAT is not justified in terms of costs and benefits and warns that any costs assessed to broker-dealers will ultimately be passed on to investors.\78\ Similarly, another commenter believes that fees imposed on broker-dealers are likely to be passed through to investors, effectively limiting investor choice in execution venues.\79\ --------------------------------------------------------------------------- \76\ See FIA Letter, supra note 23, at 2. \77\ See id. See also Cerny & O'Malley Letter, supra note 23, at 4 (suggesting that the CAT will not capture any new violative activity not currently disclosed under current surveillance practices). \78\ See FIA Letter, supra note 23, at 2. \79\ See MFA Letter, supra note 23, at 2. --------------------------------------------------------------------------- In response to the comment questioning the utility of the CAT, the Participants explain that they are obligated to build the CAT by Rule 613.\80\ Further, the Participants state that the CAT NMS Plan requires them to eliminate existing systems and rules made duplicative by the CAT and that they have already filed proposals to accomplish this for certain such systems and rules.\81\ The Participants add that the CAT is intended to replace the current audit trails (which vary in data and scope, among other ways) with a single, comprehensive audit trail.\82\ --------------------------------------------------------------------------- \80\ See Response from Participants, supra note 23, at 17. \81\ See id. at 18. As an example of such a filing, the Participants cite to Securities Exchange Act Release No. 80783 (May 26, 2017), 82 FR 25423 (June 1, 2017) (SR-FINRA-2017-013), wherein FINRA proposes to eliminate the Order Audit Trail System. See Response from Participants, supra note 23, at 18 n.103. \82\ See Response from Participants, supra note 23, at 18. --------------------------------------------------------------------------- Funding Authority One commenter challenges the imposition of a CAT Fee on Industry Members, arguing that the Participants have not provided justification for imposing such a fee and that the Industry Members should not be obligated to pay any costs or expenses other than the direct costs to build and operate the CAT.\83\ Two commenters note that broker-dealers already pay the Participants a significant amount in regulatory funding, and argue that costs other than the direct costs to build and operate the CAT (such as insurance and consulting) should be borne by the Participants as the costs they incur to do business as self- regulatory organizations, as well as any costs [[Page 31662]] incurred before the approval of the CAT NMS Plan.\84\ --------------------------------------------------------------------------- \83\ See SIFMA Letter, supra note 23, at 2-4. \84\ See FIA Letter, supra note 23, at 2-3; see also SIFMA Letter, supra note 23, at 3-4. --------------------------------------------------------------------------- In their response, the Participants state that Rule 613 of Regulation NMS (``Rule 613'') \85\ contemplates broker-dealers contributing to the funding of CAT.\86\ Because the CAT improves regulatory oversight of the securities markets, the Participants believe that it would be equitable to require broker-dealers and Participants to fund the CAT.\87\ The Participants further believe that Rule 613 and the Approval Order \88\ support their recovery of costs related to the creation, implementation and maintenance of the CAT NMS Plan, such as third-party support costs, the operational reserve and insurance costs, through the CAT Fee.\89\ --------------------------------------------------------------------------- \85\ 17 CFR 242.613. \86\ See Response from Participants, supra note 23, at 3. \87\ See id. at 4. \88\ See supra note 29. \89\ See Response from Participants, supra note 23, at 7-8. --------------------------------------------------------------------------- Industry Member Input Three commenters argue that the funding decisions would have benefited from greater involvement from Industry Members.\90\ Two commenters assert that the Participants' development of the funding model should have involved collaboration with the broker-dealer community.\91\ One commenter opines that if broker-dealers had been involved in the development of the funding model, such participation would have been helpful in understanding why market participants are subject to CAT fees and the rationale for the proposed fee structure.\92\ Another commenter believes that the proposed fees lack substantive input from the Industry Members.\93\ The third commenter recommends that the CAT NMS Plan Operating Committee include market participant representatives with respect to funding and data security, to enhance transparency and mitigate potential conflicts of interest.\94\ --------------------------------------------------------------------------- \90\ See SIFMA Letter; FIA Letter; MFA Letter, supra note 23. \91\ See SIFMA Letter, supra note 23, at 2-3; see FIA Letter, supra note 23, at 2 (stating ``we struggle to understand how excluding other market participants and taking input only from the Plan Participants is anything but prejudicial''). \92\ See FIA Letter, supra note 23, at 2. \93\ See SIFMA Letter, supra note 23, at 2-3. \94\ See MFA Letter, supra note 23, at 2. --------------------------------------------------------------------------- In response to the comment that the funding model should have been the result of greater industry collaboration, the Participants assert that market participants were given the opportunity to comment on the funding model through the CAT NMS Plan Notice \95\ and that, in developing the funding model, the Participants considered the input of members of the industry through the ``Development Advisory Group'' that was formed to provide industry feedback on the development of the CAT NMS Plan.\96\ Further, the Participants assert that the proposed fees provide the opportunity for public comment on the fees.\97\ --------------------------------------------------------------------------- \95\ See supra note 28. \96\ See Response from Participants, supra note 23, at 2-3. \97\ See id. at 2. --------------------------------------------------------------------------- Conflicts of Interest Three commenters raise concerns about Participant conflicts of interest in setting the CAT fees.\98\ One commenter argues that, through the proposals, the Participants are imposing unreasonable fees on their competitors, the Industry Members, who, as members of the Participants, have no recourse but to pay the fees or risk regulatory action.\99\ This commenter states that 88% of the total costs of building and operating the CAT are allocated to broker-dealers and ATSs under the proposed fees, suggesting the Participants decided to allocate nearly all of the costs of CAT to their competitors.\100\ Accordingly, the commenter recommends that an independent third party should have established the proposed CAT Fees to prevent the Participants from setting fees to their benefit.\101\ --------------------------------------------------------------------------- \98\ See SIFMA Letter, FIA Letter, MFA Letter, supra note 23. \99\ See SIFMA Letter, supra note 23, at 2-3. \100\ See id. at 2-3. \101\ See id. --------------------------------------------------------------------------- Another commenter argues that the Participants have a clear conflict of interest when setting their own cost allocation.\102\ This commenter states that the not-for-profit structure of the Company is essential to the CAT NMS Plan, seeks assurance that the Company has filed for business league status and, if so, asks whether the application has been approved.\103\ The third commenter believes the process to establish the CAT fees does not address the Participants' potential conflicts of interest related to their commercial interests.\104\ --------------------------------------------------------------------------- \102\ See FIA Letter, supra note 23, at 2. \103\ See id. at 3. This commenter raises concerns about the impact on the costs and allocations if the Company's application to become a business league is not approved by the Internal Revenue Service (``IRS''). Id. \104\ See MFA Letter, supra note 23, at 2. --------------------------------------------------------------------------- In their response, the Participants explain that it is unnecessary to require an independent third party to establish the CAT Fees, in part because the funding of the CAT is designed to protect against any conflicts of interest in the Participants' ability to set fees, through the operation of the CAT on a break-even basis (such that any fees collected would be used toward CAT costs and an appropriate reserve, and that surpluses would offset fees in future payment).\105\ The Participants also refer to the application of the Company to be organized as a tax-exempt business league, which would require that no part of the Company's net earnings can inure to the benefit of the Participants and that the Company is not organized for profit.\106\ Additionally, the Participants note that the obligation to create, develop and maintain the CAT is their own responsibility, so they must have the ability to establish reliable funding and not an independent third party.\107\ --------------------------------------------------------------------------- \105\ See Response from Participants, supra note 23, at 11. \106\ See id. \107\ See id. at 11-12. --------------------------------------------------------------------------- In response to the comment asking about the status of the Company's application to be organized as a tax-exempt business league, the Participants state that the Company filed its IRS application on May 5, 2017, and that the application is currently pending. The Participants explain that if the IRS does not approve the application, the Company will operate as set forth in the Plan, but may be required to pay taxes. They believe that it is premature to include a tax contingency plan in the proposals.\108\ --------------------------------------------------------------------------- \108\ See id. at 11, 18. --------------------------------------------------------------------------- Allocation of Fees Several commenters raise concerns about the proposed allocation of CAT fees.\109\ One commenter argues that the proposals are not an equitable allocation of reasonable fees under Section 6(b)(4) or Section 15A(b)(5) of the Exchange Act.\110\ This commenter notes that the proposed fees allocate approximately 88% of the total costs of building and operating the CAT to broker-dealers and ATSs \111\ and questions the ``comparability'' justification provided by the Participants for allocating 75% of the total CAT costs to Industry Members, stating that the proposed fees are not comparable at the highest tiers.\112\ Similarly, another commenter opines that the 75%/ 25% allocation of the CAT costs is inequitable, explaining that the Participants will be able to realize cost savings from the retirement [[Page 31663]] of regulatory reporting processes.\113\ A third commenter notes that it is unable to understand the justification for the 75% allocation to broker-dealers,\114\ and the fourth commenter believes that the Participants are disproportionately imposing fees on Industry Members, which could put Industry Members at a competitive disadvantage.\115\ --------------------------------------------------------------------------- \109\ See SIFMA Letter; Cerny & O'Malley Letter, FIA Letter; MFA Letter, supra note 23. \110\ See SIFMA Letter, supra note 23, at 3. \111\ See id. at 3 n.4. \112\ See id. at 3. \113\ See Cerny & O'Malley Letter, supra note 23, at 2. \114\ See FIA Letter, supra note 23, at 3. \115\ See MFA Letter, supra note 23, at 2. --------------------------------------------------------------------------- In response to comments regarding the allocation of CAT costs, the Participants first state that the 88% figure cited in the first commenter's letter is the cost broker-dealers will incur directly to comply with the reporting requirements of the CAT, not the CAT Fees.\116\ The Participants also note that this is an aggregate number and reflects the fact that there are 75 times more Industry Members that would report to the CAT than Participants.\117\ --------------------------------------------------------------------------- \116\ See Response from Participants, supra note 23, at 5. \117\ See id. --------------------------------------------------------------------------- In addition, the Participants explain that the Operating Committee believed that the 75%/25% division of total CAT costs between Industry Members and Execution Venues maintained the greatest level of comparability, considering affiliations among or between CAT Reporters.\118\ The Participants state that although the Tier 1 and 2 fees for Industry Members would be higher than those for Execution Venues, the fees paid by Execution Venue complexes would be higher than those paid by Industry Member complexes.\119\ The Participants also note that the cost allocation takes into account that there are approximately 24 times more Industry Members that would report to the CAT than Execution Venues.\120\ --------------------------------------------------------------------------- \118\ See id. at 15. \119\ See id. The Participants note that ``the proposed funding model estimates total fees for associated Participant complexes that are in several cases nearly two to three times larger than the single largest broker-dealer complex.'' See id. at 6. \120\ See id. at 15. The Commission notes that the Notice stated that there are approximately 25 times more Industry Members expected to report to the CAT than Execution Venues. See Notice, supra note 16, at 23109. --------------------------------------------------------------------------- Tiering Methodology Two commenters believe that the proposed tiering methodology is inequitable and unreasonable.\121\ Both commenters raise concerns that the tiers will be applied inequitably because Industry Members will be assessed fees based on their message traffic (the biggest cost component of the CAT), while Participants will be assessed fees on their market share.\122\ One of the commenters notes that, although the Participants proposed nine tiers for Industry Members, they have only proposed two tiers for Execution Venues,\123\ ``claiming that additional tiers would have resulted in significantly higher fees for Tier 1 [E]xecution [V]enues and diminish comparability between [E]xecution [V]enues and Industry Members.'' \124\ Both commenters believe the result will ``maximize costs for broker-dealers and minimize costs for Plan Participants.'' \125\ One of the commenters also questions why it makes sense to charge a fixed fee for all market participants within a single tier, and whether the fixed-fee tiers set forth therein could create incentives for market participants to limit their quoting and trading activities as their trading volumes approach higher tiers.\126\ --------------------------------------------------------------------------- \121\ See SIFMA Letter; FIA Letter, supra note 23. \122\ See FIA Letter, supra note 23, at 3; SIFMA Letter, supra note 23, at 4 (stating ``the Plan Participants proposals inexplicably propose a tiering mechanism for themselves that is based on not their relative impact to the CAT system, but instead on their relative market share''). \123\ See SIFMA Letter, supra note 23, at 4. \124\ See id. \125\ See FIA Letter, supra note 23, at 3; see also SIFMA Letter, supra note 23, at 4. \126\ See FIA Letter, supra note 23, at 3. --------------------------------------------------------------------------- In response to the comments that the tiering methodology is inequitable and unreasonable because Participants will be assessed fees based on market share, rather than message traffic, the Participants explain that charging broker-dealers based on message traffic is the most equitable means to establish their fees because message traffic is a significant cost driver of CAT. Accordingly, the Participants believe that it is appropriate to use message traffic to assign fee tiers to broker-dealers.\127\ The Participants state that charging Execution Venues based on message traffic, on the other hand, will result in large and small Execution Venues paying comparable fees as both types of Execution Venues produce similar amounts of message traffic.\128\ The Participants believe such a result would be inequitable; therefore, they decided to base fees for Execution Venues and broker-dealers on different criteria.\129\ --------------------------------------------------------------------------- \127\ See Response from Participants, supra note 23, at 6. \128\ See id. at 6. \129\ See id. The Participants also explain that, while ATSs have varying levels of message traffic, they operate similarly to exchanges and therefore were categorized as Execution Venues. See id. at 6-7. --------------------------------------------------------------------------- In response to a commenter's concern that the Participants only established two tiers for themselves, the Participants state that the CAT NMS Plan permits them to establish only two tiers and that two tiers were sufficient to distinguish between the Execution Venues.\130\ The Participants state that adding more tiers will significantly increase fees for Tier 1 and Tier 2 Execution Venues with the result of fees for Tier 1 Execution Venues being much higher than fees for Tier 1 Industry Members.\131\ In turn, the Participants believe that such a result will violate Section 11.2(c) of the CAT NMS Plan, which states that, in establishing the funding of the Company, the Operating Committee shall seek to establish a tiered fee structure in which the fees charged to the CAT Reporters with the most CAT-related activity (measured by market share and/or message traffic) 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).\132\ --------------------------------------------------------------------------- \130\ See id. at 13. The Participants also state that, unlike for Industry Members, the data for Execution Venues ``did not suggest a break point(s) for the markets with less than 1% market share that would indicate an appropriate threshold for creating a new tier or tiers.'' Id. \131\ See id. at 14. \132\ See id.; Section 11.2(c) of the CAT NMS Plan. --------------------------------------------------------------------------- In response to the comment asking why it makes sense to charge a fixed fee for all market participants within a single tier and questioning the results of fixed-fee tiering, the Participants explain that the proposed approach ``helps ensure that fees are equitably allocated among similarly situated CAT Reporters, thereby lessening the impact of CAT fees on smaller firms,'' \133\ and provides predictability of payment obligations.\134\ The Participants also state that the fixed-fee approach provides elasticity to take into account any changes in message traffic levels through the use of predefined fixed percentages instead of fixed volume thresholds, and would not likely cause CAT Reporters to change their behavior (and impact liquidity) to avoid being placed in a higher tier.\135\ --------------------------------------------------------------------------- \133\ See Response from Participants, supra note 23, at 14. \134\ See id. \135\ See id. --------------------------------------------------------------------------- Options Market-Maker Fees One commenter believes that the proposed fees will be unsustainable for small options market-makers.\136\ The commenter explains that because the [[Page 31664]] nature of their business requires the generation of quotes, the proposed assessment of fees based on message traffic will place small options market-makers in the top Industry Member fee tiers, ``[a]lthough this category of broker-dealer is relatively small in terms of net worth . . . .'' \137\ The commenter notes that the top three tier fees for Industry Members are comparable to the largest equity Execution Venues, which it states is neither equitable nor fair.\138\ The commenter also believes that smaller broker-dealers, such as options market-makers and other electronic trading firms, will be in the top fee tiers, while larger ``full-service'' firms that produce fewer electronic messages would be in the lower fee tiers.\139\ The commenter argues that this result is not equitable or fair to smaller market participants.\140\ --------------------------------------------------------------------------- \136\ See Cerny & O'Malley Letter, supra note 23, at 1. The commenter notes that options market-makers have an obligation to quote ``hundreds of thousands of options series'' and that this fact was acknowledged by the Commission, which exempted them from submitting their quotes to the Central Repository. See id. at 3; see also note 41 supra. \137\ See Cerny & O'Malley Letter, supra note 23, at 1. \138\ See id. at 3. \139\ See id. at 4. \140\ See id. --------------------------------------------------------------------------- Additionally, the commenter believes that charging Industry Members on the basis of message traffic will disproportionately impact options market-makers because, unlike for equities, message traffic would include options strikes and series.\141\ Further, the commenter notes that options market-makers have continuous quoting obligations imposed by the exchanges, and consequently, expected increases in the options classes listed by the exchanges will increase CAT fees for options market-makers.\142\ The commenter adds that the proposed fees may impact the ability of small options market-makers to provide liquidity and that such Industry Members may choose to leave the market-making business in order to avoid quoting requirements.\143\ --------------------------------------------------------------------------- \141\ See id. at 2. \142\ See id. at 3. \143\ See id. at 3, 4, 5. --------------------------------------------------------------------------- In their response, the Participants explain that since message traffic is a major cost component for CAT, they believe it is an appropriate basis for assigning Industry Member fee tiers.\144\ The Participants note that options market-makers will produce a large amount of message traffic to be processed by the CAT, so the Participants intend to charge them CAT fees.\145\ --------------------------------------------------------------------------- \144\ See Response from Participants, supra note 23, at 6, 17. \145\ See id. at 17 n. 96; see also note 41, supra. --------------------------------------------------------------------------- ATS Fees One commenter objects to the proposed fees for ATSs, which are the same fees as Participants under the proposals, as unreasonable, because it believes the fees would result a significant burden on small ATSs and a barrier to entry for new ATSs that would not similarly apply to the Participants.\146\ --------------------------------------------------------------------------- \146\ See SIFMA Letter, supra note 23, at 4. SIFMA states that Tier 2 Execution Venues will produce significantly more reports to CAT than Tier 2 ATSs, but points out that Tier 2 Execution Venues and Tier 2 ATSs will be subject to the same CAT Fees. See id. --------------------------------------------------------------------------- Another commenter objects to the proposals' treatment of smaller Equity Execution Venues (such as low volume ATSs), opining that such treatment is unfair and anti-competitive.\147\ The commenter also argues that smaller Execution Venues that were assigned to the second fee tier would be required to pay two-thirds of the fees allocated to ``the enormous NYSE or Nasdaq exchanges.'' \148\ This commenter suggests adding at least one tier for small ATSs executing in the aggregate less than 1% of NMS stocks (based on trade volume), as well as for ATSs executing OTC Equity securities, and allocating approximately 1.5% of the total costs assigned to all Execution Venues to that tier.\149\ --------------------------------------------------------------------------- \147\ See OTC Markets Letter, supra note 23, at 1-2. \148\ See id. at 9. \149\ See id. --------------------------------------------------------------------------- In response to the comment noting that charging ATSs the same CAT fees as Execution Venues would result in a significant burden on smaller ATSs and act as a barrier to entry, the Participants reiterate that two fee tiers for Execution Venues were appropriate because adding tiers would ``compromise the comparability of fees between Execution Venues and Industry Members with the most CAT-related activity. . . . [C]reating additional tiers could have unintended consequences on the funding model such as creating greater discrepancies between the tiers.'' \150\ The Participants also explain that they decided to treat Execution Venues and ATSs in the same way because of the similarities of their business models and estimated burden on CAT.\151\ --------------------------------------------------------------------------- \150\ See Response from Participants, supra note 23, at 16. \151\ See id. at 6-7. --------------------------------------------------------------------------- In response to the comment recommending the addition of a tier for small ATSs executing in the aggregate less than 1% of NMS stocks, the Participants explain that two fee tiers for Execution Venues were appropriate because adding tiers would ``compromise the comparability of fees between Execution Venues and Industry Members with the most CAT-related activity.'' \152\ The Participants also state that they considered adding more than two tiers of Execution Venue fees, but that doing so would result greatly increase the fees imposed on Tier 1 Equity Execution Venues and ``diminish comparability between Execution Venues and Industry Members in a manner that would be difficult to justify under the funding model.'' \153\ --------------------------------------------------------------------------- \152\ See id. at 16. \153\ See id. --------------------------------------------------------------------------- OTC Equity Securities Execution Venues One commenter objects to the proposals' treatment of Execution Venues for OTC Equity securities, opining that it is unfair and anti- competitive.\154\ The commenter particularly objects to the assignment of OTC Link ATS to the first fee tier of Execution Venues with large Execution Venues for NMS Stocks.\155\ The commenter states that OTC Link ATS was placed in the first CAT fee tier because fee tier assignments are inappropriately based on market share calculated from share volume.\156\ The commenter states that the number of trades in OTC Equity Securities is relatively small,\157\ as opposed to share volume ``due to the disproportionately large number of shares being traded on the OTC equity market as compared to the NMS market. . . .'' \158\ The commenter explains that many OTC Equity Securities are priced at less than one dollar--and a significant number at less than one penny--and that low-priced shares tend to trade in larger quantities.\159\ Because the fee tiers are based on market share calculated from share volume, the commenter points out that OTC Link ATS has the greatest market share of all of the Execution Venues in both NMS Stocks and OTC Equity Securities at 29.90% and [[Page 31665]] accordingly was assigned to the same fee tier as exchanges that the commenter claims have approximately 20 times greater trading revenues than OTC Link ATS.\160\ The commenter believes that this unfairly burdens the market for OTC Equity Securities.\161\ The commenter recommends placing Execution Venues for OTC Equity Securities in separate tiers from large Execution Venues for NMS Stocks and allocating costs to tiers based on number of trades to align tiers with CAT usage and costs.\162\ Specifically, the commenter believes that there should be separate tiers for the Execution Venues for OTC Equity Securities with approximately 0.5% of the total costs assigned to all Execution Venues allocated to that tier, or at least one additional tier for small ATSs executing in the aggregate less than 1% of NMS stocks (based on trade volume) and OTC Equity securities with approximately 1.5% of the total costs assigned to all Execution Venues allocated to that tier.\163\ --------------------------------------------------------------------------- \154\ See OTC Markets Letter, supra note 23, at 1-2. \155\ See id. at 1, 3, 5. \156\ See id. at 6-8. The commenter states that ``[s]hare volume is an inappropriate method for determining market share, because the costs of operating the CAT are not correlated with the number of shares traded in any particular Execution Venue. Instead, CAT's costs are impacted by the number of orders and executions.'' See id. at 6. The commenter recommends using the number of trades in lieu of share volume, or dollar volume instead of share volume, for determining market share. See id. at 7-8. \157\ See id. at 4. \158\ See id. at 7. \159\ See id. \160\ See id. at 3. \161\ See id. \162\ See id. at 8. \163\ See id. at 9. --------------------------------------------------------------------------- In their response, the Participants state that the CAT NMS Plan provides for the use of share volume to calculate market share for Execution Venues that execute transactions in NMS Stocks or OTC Equity Securities.\164\ The Participants explain that two fee tiers for Execution Venues were appropriate because adding tiers would ``compromise the comparability of fees between Execution Venues and Industry Members with the most CAT-related activity'' \165\ and that they considered adding more than two tiers of Execution Venue fees, but that doing so would result greatly increase the fees imposed on Tier 1 Equity Execution Venues and ``diminish comparability between Execution Venues and Industry Members in a manner that would be difficult to justify under the funding model.'' \166\ The Participants believe that the CAT Fees do not impose an unnecessary or inappropriate burden on competition on OTC Equity Securities Execution Venues in light of the potential negative impact of increasing the number of fee tiers applicable to Execution Venues and the decision to use market share, as calculated by share volume, as the basis for Execution Venue CAT Fees.\167\ --------------------------------------------------------------------------- \164\ See Response from Participants, supra note 23, at 16. \165\ See id. \166\ See id. \167\ See id. --------------------------------------------------------------------------- IV. Suspension of the Proposed Rule Changes Pursuant to Section 19(b)(3)(C) of the Act,\168\ at any time within 60 days of the date of filing of an immediately effective proposed rule change in accordance with Section 19(b)(1) of the Act,\169\ the Commission summarily may temporarily suspend the change in the rules of a self-regulatory organization made thereby if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. The Commission believes a temporary suspension of the proposed rule changes is warranted here.\170\ --------------------------------------------------------------------------- \168\ 15 U.S.C. 78s(b)(3)(C). \169\ 15 U.S.C. 78s(b)(1). \170\ For purposes of temporarily suspending the proposed rule changes, the Commission has considered the proposed rules' impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). --------------------------------------------------------------------------- In particular, the Commission finds that it is appropriate in the public interest, for the protection of investors, and otherwise in furtherance of the purposes of the Act, to temporarily suspend the proposed rule changes to consider whether the proposed rule changes satisfy the standards under the Act and the rules thereunder requiring, among other things, that the rules of an exchange or a national securities association provide for the equitable allocation of reasonable fees among members, issuers, and other persons using its facilities; promote just and equitable principles of trade; protect investors and the public interest; do not permit unfair discrimination between customers, issuers, brokers or dealers; and do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.\171\ --------------------------------------------------------------------------- \171\ See 15 U.S.C. 78f(b)(4), (5), and (8); 15 U.S.C. 78o- 3(b)(5), (6), and (9). --------------------------------------------------------------------------- The proposed rule changes are subject to Section 6 of the Act in the case of the national securities exchanges and Section 15A of the Act in the case of the national securities association, including: (1) Section 6(b)(4) \172\ and Section 15A(b)(5),\173\ which require the rules of an exchange or a national securities association to ``provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities;'' \174\ (2) Section 6(b)(5) and Section 15A(b)(6), which require the rules of an exchange or a national securities association to, among other things, ``promote just and equitable principles of trade . . . protect investors and the public interest; and [to be] not designed to permit unfair discrimination between customers, issuers, brokers, or dealers;'' \175\ and (3) Section 6(b)(8) and Section 15A(b)(9), which require the rules of an exchange or a national securities association to ``not impose any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter.'' \176\ --------------------------------------------------------------------------- \172\ 15 U.S.C. 78f(b)(4). \173\ 15 U.S.C. 78o-3(b)(5). \174\ 15 U.S.C. 78f(b)(4). \175\ 15 U.S.C. 78f(b)(5); 15 U.S.C. 78o-3(b)(6). \176\ 15 U.S.C. 78f(b)(8); 15 U.S.C. 78o-3(b)(9). --------------------------------------------------------------------------- In temporarily suspending the proposed rule changes, the Commission intends to consider whether, among other things, the following aspects of the proposed rule changes are consistent with the Act:The allocation of 75% of total costs recovered to Industry Members (other than Execution Venue ATSs) and 25% to Execution Venues, and the comparability of fees between the largest Industry Members and Tier 1 Execution Venues. The Participants stated that this 75%/25% division maintains the greatest level of comparability across the funding model, keeping in view that comparability should consider affiliations among or between CAT Reporters.\177\ The Participants explained that the cost allocation establishes fees for the largest Industry Members that are comparable to the largest Equity Execution Venues and Options Execution Venues.\178\ In addition, they stated that the cost allocation establishes fees for Execution Venue complexes that are comparable to those of Industry Member complexes.\179\ Furthermore, the Participants noted that [[Page 31666]] the allocation of total CAT costs recovered recognizes that there are approximately 25 times more Industry Members expected to report to the CAT than Execution Venues.\180\ --------------------------------------------------------------------------- \177\ See, e.g., Notice, supra note 16, at 23109. The CAT NMS Plan funding principles state that, in establishing the funding of the Company, the Operating Committee shall seek 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; and (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 Venues and/or Industry Members). See Section 11.2(c) of the CAT NMS Plan. \178\ See, e.g., Notice, supra note 16, at 23109. \179\ See id. The Participants also represented that other possible allocations of CAT costs led to much higher fees for larger Industry Members than for larger Execution Venues or vice versa and/ or much higher fees for Industry Member complexes than for Execution Venue complexes or vice versa. See id. \180\ See id. --------------------------------------------------------------------------- The determination to rely on market share, as calculated by share volume in NMS Stocks and OTC Equity Securities, to place Equity Execution Venues for OTC Equity Securities and Execution Venues representing less than 1% NMS market share (primarily lower volume ATSs) in the same fee tier structure as Equity Execution Venues for NMS Stocks, as well as the determination to set two fee tiers and charge Equity Execution Venues in Tier 2 approximately two-thirds of the fees allocated to Equity Execution Venues in Tier 1. The CAT NMS Plan permits the Operating Committee to establish at least two and no more than five tiers of fixed fees for Equity Execution Venues.\181\ The Participants explained that the Operating Committee determined to establish two tiers for Equity Execution Venues, rather than a larger number of tiers, because they believed that two tiers were sufficient to distinguish between the smaller number of Equity Execution Venues based on market share.\182\ The Participants added that the incorporation of additional Equity Execution Venue tiers will result in significantly higher fees for Tier 1 Equity Execution Venues and diminish comparability between Execution Venues and Industry Members.\183\ The Participants stated that the Operating Committee considered the distribution of Execution Venues, grouped together Execution Venues with similar levels of market share of share volume, and determined that it was simpler and more appropriate to have fewer, rather than more, Execution Venue fee tiers to distinguish between Execution Venues.\184\ --------------------------------------------------------------------------- \181\ See Section 11.3(a)(i) of the CAT NMS Plan. \182\ See, e.g., Notice, supra note 16, at 23107. \183\ See id. \184\ See id. --------------------------------------------------------------------------- The inclusion of options market-maker quotes in message traffic for purposes of calculating the appropriate fee tier for Industry Members. The Participants stated that, under the proposals, each Industry Member will be placed into one of nine tiers of fixed fees, based on message traffic for a defined period.\185\ Further, the Participants stated that 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.\186\ --------------------------------------------------------------------------- \185\ See id. at 23104. \186\ See id. at 23106 n.36. --------------------------------------------------------------------------- V. Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Changes In addition to temporarily suspending the proposal, the Commission also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) \187\ and 19(b)(2) of the Act \188\ to determine whether the Exchange's proposed rule change should be approved or disapproved. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as stated below, the Commission seeks and encourages interested persons to provide comments on the proposed rule change to inform the Commission's analysis of whether to approve or disapprove the proposed rule change. --------------------------------------------------------------------------- \187\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily suspends a proposed rule change, Section 19(b)(3)(C) of the Act requires that the Commission institute proceedings under Section 19(b)(2)(B) to determine whether a proposed rule change should be approved or disapproved. \188\ 15 U.S.C. 78s(b)(2). --------------------------------------------------------------------------- Pursuant to Section 19(b)(2)(B) of the Act,\189\ the Commission is hereby providing notice of the grounds for disapproval under consideration. The Commission believes that instituting proceedings will allow for additional analysis of, and input from commenters with respect to, the proposed rule change's consistency with: (1) Section 6(b)(4) \190\ and Section 15A(b)(5),\191\ which require the rules of an exchange or a national securities association to ``provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities;'' \192\ (2) Section 6(b)(5) and Section 15A(b)(6), which require the rules of an exchange or a national securities association to, among other things, ``promote just and equitable principles of trade . . . protect investors and the public interest; and [to be] not designed to permit unfair discrimination between customers, issuers, brokers, or dealers;'' \193\ (3) Section 6(b)(8) and Section 15A(b)(9), which require the rules of an exchange or a national securities association to ``not impose any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter;'' \194\ and (4) the funding principles set forth in the CAT NMS Plan, which state that the Operating Committee shall seek, among other things, ``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 . . . distinctions in the securities trading operations of Participants and Industry Members and their relative impact upon the Company resources and operations'' \195\ and ``to avoid any disincentives such as placing an inappropriate burden on competition and a reduction in market quality.'' \196\ --------------------------------------------------------------------------- \189\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also provides that proceedings to determine whether to disapprove a proposed rule change must be concluded within 180 days of the date of publication of notice of the filing of the proposed rule change. See id. The time for conclusion of the proceedings may be extended for up to 60 days if the Commission finds good cause for such extension and publishes its reasons for so finding, or if the exchange consents to the longer period. See id. \190\ 15 U.S.C. 78f(b)(4). \191\ 15 U.S.C. 78o-3(b)(5). \192\ 15 U.S.C. 78f(b)(4). \193\ 15 U.S.C. 78f(b)(5); 15 U.S.C. 78o-3(b)(6). \194\ 15 U.S.C. 78f(b)(8); 15 U.S.C. 78o-3(b)(9). \195\ Section 11.2(b) of the CAT NMS Plan. \196\ Section 11.2(e) of the CAT NMS Plan. --------------------------------------------------------------------------- The Commission believes that the proposed rule changes raise questions as to whether the allocation of the total CAT costs recovered between and among Industry Members and Execution Venues is reasonable, equitable, and not unfairly discriminatory under Section 6 and Section 15A of the Act. In particular, the Commission wishes to consider further whether the allocation of 75% of total CAT costs recovered to Industry Members (other than Execution Venue ATSs) and 25% to Execution Venues is equitable and not unfairly discriminatory, and whether the CAT Fees are consistent with the funding principles set forth in the CAT NMS Plan, which state that, in establishing the funding of the Company, the Operating Committee shall seek, among other things, ``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 . . . distinctions in the securities trading operations of Participants and Industry Members and their relative impact upon the Company resources and operations'' \197\ and ``to avoid any disincentives such as placing an inappropriate burden on competition and a reduction in market quality.'' \198\ --------------------------------------------------------------------------- \197\ Section 11.2(b) of the CAT NMS Plan. \198\ Section 11.2(e) of the CAT NMS Plan. --------------------------------------------------------------------------- The Commission also believes the proposed rule changes raise questions as to whether the Participants have addressed the impact of the proposed tiers on Industry Members who are options market makers, who are required to continually quote a two- [[Page 31667]] sided market in hundreds of thousands of options series. Specifically, the Commission wishes to consider further whether the proposed rule changes will result in an undue or inappropriate burden on competition under Section 6 and Section 15A or lead to a reduction in market quality contrary to the funding principles expressed in the CAT NMS Plan.\199\ --------------------------------------------------------------------------- \199\ See id. (requiring the Operating Committee ``to avoid any disincentives such as placing an inappropriate burden on competition and a reduction in market quality''). --------------------------------------------------------------------------- Finally, the Commission believes the proposed rule changes raise questions as to whether the determination to place Execution Venues for OTC Equity Securities in the same tier structure as Execution Venues for NMS Stocks will result in an undue or inappropriate burden on competition under Section 6 and Section 15A. Specifically, the Commission wishes to consider whether the Participants' decision to group Execution Venues for OTC Equity Securities and NMS Stocks in one tier structure, recognizing that the application of share volume may lead to different outcomes as applied to OTC Equity Securities and NMS Stocks. The Commission is also considering whether the determination to place Execution Venues representing less than 1% of NMS market share in the same tier structure as other Equity Execution Venues will result in an undue or inappropriate burden on competition under Section 6 and Section 15A. VI. Commission's Solicitation of Comments The Commission requests written views, data, and arguments with respect to the concerns identified above as well as any other relevant concerns. Such comments should be submitted by July 28, 2017. Rebuttal comments should be submitted by August 11, 2017. The Commission asks that commenters address the sufficiency and merit of the Participants' statements in support of the proposal, which are set forth in the proposed rule changes,\200\ in addition to any other comments they may wish to submit about the proposed rule changes. In particular, the Commission seeks comment on the following: --------------------------------------------------------------------------- \200\ See, e.g., Notice, supra note 16. --------------------------------------------------------------------------- (1) With respect to the proposed allocation of total CAT costs: (a) Commenters' views on the determination to allocate 75% of total CAT costs recovered to Industry Members (other than Execution Venue ATSs) and 25% to Execution Venues; (b) Commenters' views on whether the proposed allocation of CAT Fees is consistent with the funding principles expressed in the CAT NMS Plan, which state that the Operating Committee shall seek, among other things, ``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 . . . distinctions in the securities trading operations of Participants and Industry Members and their relative impact upon the Company resources and operations'' \201\ and ``to avoid any disincentives such as placing an inappropriate burden on competition and a reduction in market quality''; \202\ --------------------------------------------------------------------------- \201\ Section 11.2(b) of the CAT NMS Plan. \202\ Section 11.2(e) of the CAT NMS Plan. --------------------------------------------------------------------------- (c) Commenters' views on whether the Participants' approach to accounting for affiliations among Execution Venues in setting CAT Fees disadvantages non-affiliated Execution Venues or otherwise burdens competition in the market for trading services; and (d) Commenters' views on potential alternative allocations of total CAT costs to Industry Members and Execution Venues, including allocations that do not so heavily account for comparability between and among Industry Member Complexes and Execution Venue Complexes. (2) With respect to the proposed CAT Fees for Execution Venues: (a) Commenters' views on the determination to place Equity Execution Venues for OTC Equity Securities and Equity Execution Venues representing less than 1% NMS market share (primarily lower volume ATSs) in the same fee tier structure as large Equity Execution Venues for NMS Stocks, including views as to whether this approach is consistent with the funding principles outlined in the CAT NMS Plan, views as to how this approach will affect competition in the market for trading services for low-priced NMS Stocks and/or securities not listed on national securities exchanges, and views regarding how these venues can be expected to contribute to CAT message traffic compared to other Equity Execution Venues; (b) Commenters' views as to whether a separate tier structure should have been created for Equity Execution Venues for OTC Equity Securities, similar to the separate tier structure created for Options Execution Venues; (c) Commenters' views, and supporting data, on whether charging Execution Venues based on message traffic will result in large and small Execution Venues paying comparable fees; and (d) Commenters' views on the appropriate number of tiers for Execution Venues and the appropriate distribution of fees across such tiers. (3) With respect to the proposed CAT Fees for both Industry Members and Execution Venues, commenters' views on whether the decreasing cost per additional unit (of message traffic in the case of Industry Members or of share volume in the case of Execution Venues) in the proposed fee schedules burdens competition by disadvantaging small Industry Members and Execution Venues and/or by creating barriers to entry in the market for trading services and/or the market for broker-dealer services.\203\ --------------------------------------------------------------------------- \203\ The fee structure tends to charge more per unit of message traffic to smaller Industry Members, and more per unit of share volume to smaller Execution Venues. --------------------------------------------------------------------------- (4) With respect to the proposed CAT Fees for Industry Members: (a) Commenters' views on the determination to include options market-maker quotes in message traffic for purposes of calculating the appropriate fee tier for options market-makers; and (b) Commenters' views on the appropriate number of tiers for Industry Members and the appropriate distribution of fees across such tiers. The Commission also requests that commenters provide analysis to support their views, if possible. Interested persons are invited to submit written data, views, and arguments concerning the proposed rule changes, including whether the proposed rule changes are consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include any of: File Nos. SR-BatsBYX-2017-11; SR-BatsBZX-2017-38; SR-BatsEDGA-2017- 13; SR-BatsEDGX-2017-22; SR-BOX-2017-16; SR-BX-2017-023; SR-C2-2017- 017; SR-CBOE-2017-040; SR-CHX-2017-08; SR-FINRA-2017-011; SR-GEMX-2017- 17; SR-IEX-2017-16; SR-ISE-2017-45; SR-MIAX-2017-18; SR-MRX-2017-04; SR-NASDAQ-2017-046; SR-NYSE-2017-22; SR-NYSEArca-2017-52; SR-NYSEMKT- 2017-26; SR-PEARL-2017-20; or SR-PHLX-2017-37 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. [[Page 31668]] All submissions should refer to any of: File Nos. SR-BatsBYX-2017-11; SR-BatsBZX-2017-38; SR-BatsEDGA-2017-13; SR-BatsEDGX-2017-22; SR-BOX- 2017-16; SR-BX-2017-023; SR-C2-2017-017; SR-CBOE-2017-040; SR-CHX-2017- 08; SR-FINRA-2017-011; SR-GEMX-2017-17; SR-IEX-2017-16; SR-ISE-2017-45; SR-MIAX-2017-18; SR-MRX-2017-04; SR-NASDAQ-2017-046; SR-NYSE-2017-22; SR-NYSEArca-2017-52; SR-NYSEMKT-2017-26; SR-PEARL-2017-20; or SR-PHLX- 2017-37. The file numbers should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule changes that are filed with the Commission, and all written communications relating to the proposed rule changess 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 principal office of the Participants. 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 publicly available. All submissions should refer to any of: File Nos. SR-BatsBYX-2017-11; SR-BatsBZX-2017-38; SR-BatsEDGA-2017-13; SR- BatsEDGX-2017-22; SR-BOX-2017-16; SR-BX-2017-023; SR-C2-2017-017; SR- CBOE-2017-040; SR-CHX-2017-08; SR-FINRA-2017-011; SR-GEMX-2017-17; SR- IEX-2017-16; SR-ISE-2017-45; SR-MIAX-2017-18; SR-MRX-2017-04; SR- NASDAQ-2017-046; SR-NYSE-2017-22; SR-NYSEArca-2017-52; SR-NYSEMKT-2017- 26; SR-PEARL-2017-20; or SR-PHLX-2017-37 and should be submitted on or before July 28, 2017. Rebuttal comments should be submitted by August 11, 2017. VII. Conclusion It is therefore ordered, pursuant to Section 19(b)(3)(C) of the Act,\204\ that File Nos. SR-BatsBYX-2017-11; SR-BatsBZX-2017-38; SR- BatsEDGA-2017-13; SR-BatsEDGX-2017-22; SR-BOX-2017-16; SR-BX-2017-023; SR-C2-2017-017; SR-CBOE-2017-040; SR-CHX-2017-08; SR-FINRA-2017-011; SR-GEMX-2017-17; SR-IEX-2017-16; SR-ISE-2017-45; SR-MIAX-2017-18; SR- MRX-2017-04; SR-NASDAQ-2017-046; SR-NYSE-2017-22; SR-NYSEArca-2017-52; SR-NYSEMKT-2017-26; SR-PEARL-2017-20; and SR-PHLX-2017-37 be and hereby are, temporarily suspended. In addition, the Commission is instituting proceedings to determine whether the proposed rule changes should be approved or disapproved. --------------------------------------------------------------------------- \204\ 15 U.S.C. 78s(b)(3)(C). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\205\ --------------------------------------------------------------------------- \205\ 17 CFR 200.30-3(a)(57) and (58). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2017-14245 Filed 7-6-17; 8:45 am] BILLING CODE 8011-01-P
![31656 Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Notices
C. Self-Regulatory Organization’s provisions of 5 U.S.C. 552, will be SECURITIES AND EXCHANGE
Statement on Comments on the available for Web site viewing and COMMISSION
Proposed Rule Change Received From printing in the Commission’s Public
Members, Participants, or Others Reference Room, 100 F Street NE., [Release No. 34–81067; File Nos. SR–
No written comments were solicited Washington, DC 20549, on official BatsBYX–2017–11; SR–BatsBZX–2017–38;
or received with respect to the proposed business days between the hours of SR–BatsEDGA–2017–13; SR–BatsEDGX–
rule change. 10:00 a.m. and 3:00 p.m. Copies of the 2017–22; SR–BOX–2017–16; SR–BX–2017–
filing will also be available for 023; SR–C2–2017–017; SR–CBOE–2017–
III. Date of Effectiveness of the inspection and copying at the principal 040; SR–CHX–2017–08; SR–FINRA–2017–
Proposed Rule Change and Timing for 011; SR–GEMX–2017–17; SR–IEX–2017–16;
office of the Exchange. All comments SR–ISE–2017–45; SR–MIAX–2017–18; SR–
Commission Action
received will be posted without change; MRX–2017–04; SR–NASDAQ–2017–046;
Within 45 days of the date of the Commission does not edit personal SR–NYSE–2017–22; SR–NYSEArca–2017–
publication of this notice in the Federal identifying information from 52; SR–NYSEMKT–2017–26; SR–PEARL–
Register or within such longer period submissions. You should submit only 2017–20; SR–PHLX–2017–37]
up to 90 days (i) as the Commission may information that you wish to make
designate if it finds such longer period available publicly. All submissions Self-Regulatory Organizations; Bats
to be appropriate and publishes its BYX Exchange, Inc; Bats BZX
should refer to File Number SR–
reasons for so finding or (ii) as to which Exchange, Inc.; Bats EDGA Exchange,
NYSEArca–2017–56 and should be
the self-regulatory organization Inc.; Bats EDGX Exchange, Inc.; BOX
submitted on or before July 28, 2017. Options Exchange LLC; C2 Options
consents, the Commission will:
A. By order approve or disapprove the For the Commission, by the Division of Exchange, Incorporated; Chicago
proposed rule change, or Trading and Markets, pursuant to delegated Board Options Exchange,
B. institute proceedings to determine authority.19 Incorporated; Chicago Stock
whether the proposed rule change Brent J. Fields, Exchange, Inc.; Financial Industry
should be disapproved. Secretary. Regulatory Authority, Inc.; Investors’
[FR Doc. 2017–14242 Filed 7–6–17; 8:45 am]
Exchange LLC; Miami International
IV. Solicitation of Comments Securities Exchange, LLC; MIAX
BILLING CODE 8011–01–P
Interested persons are invited to PEARL LLC; NASDAQ BX, Inc.;
submit written data, views and Nasdaq GEMX, LLC; Nasdaq ISE, LLC;
arguments concerning the foregoing, Nasdaq MRX, LLC; NASDAQ PHLX
including whether the proposed rule LLC; The NASDAQ Stock Market LLC;
change is consistent with the Act. New York Stock Exchange LLC; NYSE
Comments may be submitted by any of Arca, Inc. and NYSE MKT LLC;
the following methods: Suspension of and Order Instituting
Proceedings To Determine Whether To
Electronic Comments
Approve or Disapprove Proposed Rule
• Use the Commission’s Internet Changes To Establish Fees for
comment form (http://www.sec.gov/ Industry Members To Fund the
rules/sro.shtml); or Consolidated Audit Trail
• Send an email to rule-comments@
sec.gov. Please include File Number SR– June 30, 2017.
NYSEArca–2017–56 in the subject line. I. Introduction
Paper Comments On May 1, 2017,1 May 2, 2017,2 May
3, 2017,3 May 8, 2017,4 May 9, 2017,5
• Send paper comments in triplicate
May 10, 2017,6 May 12, 2017,7 May 15,
to Secretary, Securities and Exchange
Commission, 100 F Street NE., 1 Miami International Securities Exchange, LLC
Washington, DC 20549–1090. and MIAX PEARL LLC filed their proposed rule
All submissions should refer to File changes on May 1, 2017.
Number SR–NYSEArca–2017–56. This 2 The NASDAQ Stock Market LLC and NASDAQ
file number should be included in the BX, Inc. filed their proposed rule changes on May
2, 2017.
subject line if email is used. To help the 3 Chicago Stock Exchange, Inc. filed its proposed
Commission process and review your rule change on May 3, 2017.
comments more efficiently, please use 4 Financial Industry Regulatory Authority, Inc.
only one method. The Commission will filed its proposed rule change on May 8, 2017.
5 Investors’ Exchange LLC originally filed its
post all comments on the Commission’s
proposed rule change on May 3, 2017 under File
Internet Web site (http://www.sec.gov/ No. SR–IEX–2017–13, and subsequently withdrew
rules/sro.shtml). Copies of the that filing and filed this proposed rule change on
submission, all subsequent May 9, 2017.
asabaliauskas on DSKBBXCHB2PROD with NOTICES
amendments, all written statements 6 The New York Stock Exchange LLC, NYSE Arca,
with respect to the proposed rule Inc. and NYSE MKT LLC filed their proposed rule
changes on May 10, 2017.
change that are filed with the 7 NASDAQ GEMX LLC, NASDAQ ISE, LLC,
Commission, and all written NASDAQ MRX, LLC and NASDAQ PHLX LLC
communications relating to the originally filed their proposed rule changes on May
proposed rule change between the 3, 2017 under File Nos. SR–GEMX–2017–11, SR–
ISE–2017–40, SR–MRX–2017–03, and SR–PHLX–
Commission and any person, other than 2017–35, and subsequently withdrew those filings
those that may be withheld from the and filed these proposed rule changes on May 12,
public in accordance with the 19 17 CFR 200.30–3(a)(12). 2017.
VerDate Sep<11>2014 20:56 Jul 06, 2017 Jkt 241001 PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 E:\FR\FM\07JYN1.SGM 07JYN1](https://thefederalregister.org/doc/82_FR_31785/page/1.svg)
![31658 Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Notices
comment in the Federal Register on comparability purposes, the tiered fee Venue ATSs, which are described
May 17, 2016,28 and approved by the structure takes into consideration below.33 The Participants also
Commission, as modified, on November affiliations between or among CAT submitted an amendment to the Plan on
15, 2016.29 Under the CAT NMS Plan, Reporters, whether Execution Venues May 23, 2017 34 to establish the CAT
the Operating Committee of a newly and/or Industry Members).’’ 31 Under Fees to be charged to themselves.35
formed company—CAT NMS, LLC (the the Plan, such fees are to be
A. Industry Member Tiers
‘‘Company’’), of which each Participant implemented in accordance with
is a member—has the discretion to various funding principles, including an The proposed rule changes establish
establish funding for the Company to ‘‘allocation of the Company’s related fixed fees to be payable by Industry
operate the CAT, including establishing costs among Participants and Industry Members, based on message traffic.36
fees that the Participants and Industry Members that is consistent with the Under the proposed rule changes, each
Members will pay (‘‘CAT Fees’’).30 Exchange Act taking into account . . . Industry Member (other than Execution
The Plan specified that, in distinctions in the securities trading Venue ATSs 37) will be ranked by
establishing the funding of the operations of Participants and Industry message traffic and assigned to one of
Company, the Operating Committee Members and their relative impact upon nine tiers that have been predefined by
shall establish ‘‘a tiered fee structure in the Company resources and operations’’ percentages (the ‘‘Industry Member
which the fees charged to: (i) CAT and the ‘‘avoid[ance of] any Percentages’’).38 The Participants noted
Reporters that are Execution Venues, disincentives such as placing an that the percentage of costs recovered by
including ATSs, are based upon the inappropriate burden on competition each Industry Member tier will be
level of market share; (ii) Industry and reduction in market quality.’’ 32 determined by predefined percentage
Members’ non-ATS activities are based To establish CAT Fees, the allocations (the ‘‘Industry Member
upon message traffic; and (iii) the CAT Participants submitted the proposed Recovery Allocation’’).39
Reporters with the most CAT-related rule changes. As noted above, the The following table sets forth the
activity (measured by market share and/ proposed rule changes adopt fees to be specific Industry Member Percentages
or message traffic, as applicable) are charged to Industry Members, including and Industry Member Recovery
generally comparable (where, for these Industry Members that are Execution Allocations: 40
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
The Participants explained that, prior number of equity and equity options member of an exchange or FINRA over
to the start of CAT reporting, ‘‘message orders received and originated by a a three-month period, and (3) quotes
traffic’’ will be comprised of historical member of an exchange or FINRA over will be comprised of information readily
equity and equity options orders, the previous three-month period, as available to the exchanges and FINRA,
cancels and quotes provided by each well as order routes and executions such as the total number of historical
exchange and FINRA over the previous originated by a member of FINRA, (2) equity and equity options quotes
three months.41 The Participants stated cancels will be comprised of the total received and originated by a member of
that prior to the start of CAT reporting, number of equity and equity option an exchange or FINRA over the prior
(1) orders will be comprised of the total cancels received and originated by a three-month period.42 After an Industry
from Participants to Brent J. Fields, Secretary, withdrew the amendment and refiled the current 39 See,
e.g., id.
Commission, dated December 23, 2015. submission on May 23, 2017. 40 See,
e.g., id. at 23105–06.
28 Securities Exchange Act Release No. 77724 35 See Securities Exchange Act Release No. 80930
41 See, e.g., id. at 23106. The Commission
(April 27, 2016), 81 FR 30614 (May 17, 2016) (‘‘CAT (June 14, 2017), 82 FR 28180 (June 20, 2017).
approved exemptive relief allowing options market-
NMS Plan Notice’’). 36 The CAT NMS Plan provides that the CAT Fees
29 Securities Exchange Act Release No. 79318 maker quotes to be reported to the Central
payable by Industry Members shall include message
(November 15, 2016), 81 FR 84696 (November 23, Repository by the relevant Options Exchange in lieu
traffic generated by: (i) An ATS that does not
2016) (‘‘Approval Order’’). execute orders that is sponsored by an Industry of requiring that such reporting be done by both the
30 Section 11.1(b) of the CAT NMS Plan. Member and (ii) routing orders to and from any Options Exchange and the options market-maker.
ATS sponsored by an Industry Member. See Section See Securities Exchange Act Release No. 77265
asabaliauskas on DSKBBXCHB2PROD with NOTICES
31 Section 11.2(c) of the CAT NMS Plan. See
Article XI of the CAT NMS Plan for additional 11.3(b) of the CAT NMS Plan. The Participants (March 1, 2017), 81 FR 11856 (March 7, 2016). The
detail; see also, e.g., Notice, supra note 16, at noted, however, that Industry Member fees will not Participants stated that this exemption applies to
23102–04 for additional description of the CAT be applicable to an ATS that qualifies as an options market-maker quotes for CAT reporting
NMS Plan requirements. Execution Venue. See, e.g., Notice, supra note 16, purposes only. Therefore, the Participants indicated
32 See Section 11.2(b) and (e) of the CAT NMS at 23104. that options market-maker quotes will be included
Plan. 37 The Participants defined ‘‘Execution Venue
in the calculation of total message traffic for options
33 For additional details regarding these fees, see, ATSs’’ as alternative trading systems that execute market-maker under their proposed rule changes.
e.g., Notice, supra note 16. transactions in Eligible Securities. See, e.g., Notice,
See, e.g., Notice, supra note 16, at 23106 n.36.
34 The Participants initially submitted the supra note 16, at 23101.
42 See, e.g., id. at 23106.
amendment on May 9, 2017, but subsequently 38 See, e.g., id. at 23104.
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Member begins reporting to the CAT, Venues depending on the market share Under the proposed rule changes,
the Participants noted that ‘‘message of that Execution Venue in NMS Stocks each Equity Execution Venue will be
traffic’’ will be calculated based on the and OTC Equity Securities. Market ranked by market share and assigned to
Industry Member’s Reportable Events.43 share for Execution Venues will be one of two tiers that have been
B. Execution Venue Tiers calculated by share volume, except the predefined by percentages (the ‘‘Equity
market share for a national securities Execution Venue Percentages’’).46 The
For purposes of determining the CAT
association that has trades reported by Participants noted that the percentage of
Fees for ATSs, the Participants
its members to its trade reporting costs recovered by each Equity
categorized ATSs (excluding ATSs that
do not execute orders) as Execution facility or facilities for reporting Execution Venue tier will be determined
Venues.44 Furthermore, the proposed transactions effected otherwise than on by predefined percentage allocations
rule changes set different tiers for Equity an exchange in NMS Stocks or OTC (the ‘‘Equity Execution Venue Recovery
and Options Execution Venues. Equity Securities will be calculated Allocation’’).47
based on share volume of trades The following table sets forth the
1. NMS Stocks and OTC Equity reported, excluding the share volume
Securities specific Equity Execution Venue
reported to such national securities Percentages and Equity Execution
The proposed rule changes establish association by an Execution Venue.45 Recovery Allocations: 48
fixed fees to be paid by Execution
Percentage of Percentage of
equity execution Percentage of
Equity execution venue tier execution venue total recovery
venues recovery
Tier 1 ............................................................................................................................................ 25.00 26.00 6.50
Tier 2 ............................................................................................................................................ 75.00 49.00 12.25
Total ...................................................................................................................................... 100 75 18.75
2. Listed Options volume.49 Under the proposed rule each Options Execution Venue tier will
changes, each Options Execution Venue be determined by predefined percentage
The proposed rule changes establish will be ranked by market share and allocations (the ‘‘Options Execution
fixed fees to be paid by Execution assigned to one of two tiers that have Venue Recovery Allocation’’).51
Venues depending on the Listed been predefined by percentages (the The following table sets forth the
Options market share of that Execution ‘‘Options Execution Venue specific Options Execution Venue
Venue. Market share for Execution Percentages’’).50 The Participants noted Percentages and Options Execution
Venues will be calculated by contract that the percentage of costs recovered by Venue Recovery Allocations: 52
Percentage of Percentage of
options execution Percentage of
Options execution venue tier execution venue total recovery
venues recovery
Tier 1 ............................................................................................................................................ 75.00 20.00 5.00
Tier 2 ............................................................................................................................................ 25.00 5.00 1.25
Total ...................................................................................................................................... 100 25 6.25
3. Tier Assignments C. Allocation of Costs Equity Execution Venues and Options
Execution Venues, the Participants
The Participants stated that market In determining the cost allocation stated that the Operating Committee
share for Execution Venues will be between Industry Members (other than
further determined to allocate 75% of
sourced from data reported to the CAT Execution Venue ATSs) and Execution
Execution Venue costs recovered to
System after the commencement of CAT Venues, the Participants stated that the
Equity Execution Venues and 25% to
reporting.53 Prior to the commencement Operating Committee decided that 75%
of CAT reporting, the Participants stated of total costs recovered will be allocated Options Execution Venues.56
that market share for Execution Venues to Industry Members (other than D. Fee Levels
will be sourced from publicly-available Execution Venue ATSs) and 25% will
market data, including data made be allocated to Execution Venues.55 In The Participants explained that the
publicly available by Bats and FINRA.54 determining the cost allocation between sum of the CAT Fees is designed to
asabaliauskas on DSKBBXCHB2PROD with NOTICES
43 See, e.g., id. If an Industry Member (other than Regulation ATS) that operates pursuant to Rule 301 49 Section 11.3(a)(ii) of the CAT NMS Plan; see
an Execution Venue ATS) has no orders, cancels or of Regulation ATS (excluding any such ATS that also, e.g., Notice, supra note 16, at 23108.
quotes prior to the commencement of CAT does not execute orders).’’ 50 See, e.g., Notice, supra note 16, at 23108.
reporting, or no Reportable Events after CAT 45 Section 11.3(a)(i) of the CAT NMS Plan; see 51 See, e.g., id.
reporting commences, the Participants stated that 52 See, e.g., id.
the Industry Member would not have a CAT Fee also, e.g., Notice, supra note 16, at 23106–07.
46 See, e.g., Notice, supra note 16, at 23107. 53 See, e.g., id.
obligation. See, e.g., id. at n. 38.
44 See, e.g., id. at 23106. Section 1.1 of the CAT 47 See, e.g., id. 54 See, e.g., id.
55 See, e.g., id. at 23109.
NMS Plan defines ‘‘Execution Venue’’ as ‘‘a 48 See, e.g., id.
Participant or an [ATS] (as defined in Rule 300 of 56 See, e.g., id.
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![31660 Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Notices
recover the total costs of building and historic legal fees, consulting fees, and estimated costs and the calculations for
operating the CAT. They stated that the audit fees), insurance costs, and the funding model, the Operating
Operating Committee has estimated operational reserve costs—to be Committee determined to impose the
overall CAT costs—including $50,700,000 in total for the year following fees.
development and operational costs, beginning November 21, 2016.57 The For Industry Members (other than
third-party support costs (including Participants stated that, based on the Execution Venue ATSs): 58
Monthly CAT Quarterly CAT CAT fees paid
Tier fee fee annually
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 Equity Execution Venues: 59
Monthly CAT Quarterly CAT CAT fees paid
Tier fee fee annually
1 ................................................................................................................................................... $21,125 $63,375 $253,500
2 ................................................................................................................................................... 12,940 38,820 155,280
For Options Execution Venues: 60
Monthly CAT Quarterly CAT CAT fees paid
Tier fee fee annually
1 ................................................................................................................................................... $19,205 $57,615 $230,460
2 ................................................................................................................................................... 13,204 39,612 158,448
E. Changes to Fee Levels and Tiers pursuant to Section 19(b) of the movement of CAT Reporters between
The Participants noted that Section Exchange Act and become effective in tiers will not change the criteria for each
11.3(d) of the CAT NMS Plan states that accordance with the requirements of tier or the fee amount corresponding to
‘‘[t]he Operating Committee shall review Section 19(b).64 each tier.68 According to the
such fee schedule on at least an annual Participants, a CAT Reporter’s assigned
F. Initial and Periodic Tier tier will depend not only on its own
basis and shall make any changes to Reassignments
such fee schedule that it deems message traffic or market share, but also
appropriate.’’ 61 The Participants stated Under the proposed rule changes, the on the message traffic or market share
that, as part of such reviews, the Operating Committee will assign fee across all CAT Reporters.69
Operating Committee will review the tiers every three months based on G. Timing and Manner of Payment
distribution of Industry Members and market share or message traffic, as
Execution Venues across tiers and make applicable, from the prior three The proposed rule changes state that
any updates to the percentage of CAT months.65 For the initial tier the Company will provide each Industry
Reporters allocated to each tier as may assignments, the Participants stated that Member with one invoice each quarter
be necessary.62 In addition, the the Company will calculate the relevant for its CAT Fees, regardless of whether
Participants asserted that such reviews tier for each CAT Reporter using the the Industry Member is a member of
would consider the estimated ongoing prior three months of data.66 The multiple Participants.70 The proposed
CAT costs and the level of the operating Participants explained the Company rule changes further state that each
reserve, in order to adjust CAT Fees as will calculate subsequent tier Industry Member will pay its CAT Fees
appropriate.63 The Participants further assignments using the three months of to the Company via the centralized
stated that any changes to the CAT Fees data prior to the relevant tri-monthly system for the collection of CAT Fees
will be filed with the Commission date.67 The Participants noted that any established by the Company in the
asabaliauskas on DSKBBXCHB2PROD with NOTICES
57 See, e.g., id. The Participants further noted that 62 See,e.g., id. equity options orders, cancels, and quotes provided
CAT-related costs incurred prior to November 21, 63 See,e.g., id. The Participants further noted that by the Participants over the previous three-month
2016 will be addressed via a separate fee filing. See, any surplus of the Company’s revenues over its period. See, e.g., id.; see also notes 41–43 supra and
e.g., id. at n.41. expenses will be included within the operational accompanying text.
58 See, e.g., id. at 23110. reserve to offset future fees. See, e.g., id. 67 See, e.g., Notice, supra note 16, at 23115.
64 See, e.g., id.
59 See, e.g., id. 68 See, e.g., id.
65 See, e.g., id.
60 See, e.g., id. 69 See, e.g., id.
66 See, e.g., id. The Participants indicated that
61 See, e.g., id. at 23115. 70 See, e.g., id. at 23116.
such data will be comprised of historical equity and
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![Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Notices 31663
of regulatory reporting processes.113 A while Participants will be assessed fees two tiers for themselves, the
third commenter notes that it is unable on their market share.122 One of the Participants state that the CAT NMS
to understand the justification for the commenters notes that, although the Plan permits them to establish only two
75% allocation to broker-dealers,114 and Participants proposed nine tiers for tiers and that two tiers were sufficient
the fourth commenter believes that the Industry Members, they have only to distinguish between the Execution
Participants are disproportionately proposed two tiers for Execution Venues.130 The Participants state that
imposing fees on Industry Members, Venues,123 ‘‘claiming that additional adding more tiers will significantly
which could put Industry Members at a tiers would have resulted in increase fees for Tier 1 and Tier 2
competitive disadvantage.115 significantly higher fees for Tier 1 Execution Venues with the result of fees
In response to comments regarding [E]xecution [V]enues and diminish for Tier 1 Execution Venues being much
the allocation of CAT costs, the comparability between [E]xecution higher than fees for Tier 1 Industry
Participants first state that the 88% [V]enues and Industry Members.’’ 124 Members.131 In turn, the Participants
figure cited in the first commenter’s Both commenters believe the result will believe that such a result will violate
letter is the cost broker-dealers will ‘‘maximize costs for broker-dealers and Section 11.2(c) of the CAT NMS Plan,
incur directly to comply with the minimize costs for Plan which states that, in establishing the
reporting requirements of the CAT, not Participants.’’ 125 One of the funding of the Company, the Operating
the CAT Fees.116 The Participants also commenters also questions why it Committee shall seek to establish a
note that this is an aggregate number makes sense to charge a fixed fee for all tiered fee structure in which the fees
and reflects the fact that there are 75 market participants within a single tier, charged to the CAT Reporters with the
times more Industry Members that and whether the fixed-fee tiers set forth most CAT-related activity (measured by
would report to the CAT than therein could create incentives for market share and/or message traffic) are
Participants.117 market participants to limit their generally comparable (where, for these
In addition, the Participants explain quoting and trading activities as their comparability purposes, the tiered fee
that the Operating Committee believed trading volumes approach higher structure takes into consideration
that the 75%/25% division of total CAT tiers.126 affiliations between or among CAT
costs between Industry Members and In response to the comments that the Reporters, whether Execution Venues
Execution Venues maintained the tiering methodology is inequitable and and/or Industry Members).132
greatest level of comparability, unreasonable because Participants will In response to the comment asking
considering affiliations among or be assessed fees based on market share, why it makes sense to charge a fixed fee
between CAT Reporters.118 The rather than message traffic, the for all market participants within a
Participants state that although the Tier Participants explain that charging single tier and questioning the results of
1 and 2 fees for Industry Members broker-dealers based on message traffic fixed-fee tiering, the Participants
would be higher than those for is the most equitable means to establish explain that the proposed approach
Execution Venues, the fees paid by their fees because message traffic is a ‘‘helps ensure that fees are equitably
Execution Venue complexes would be significant cost driver of CAT. allocated among similarly situated CAT
higher than those paid by Industry Accordingly, the Participants believe Reporters, thereby lessening the impact
Member complexes.119 The Participants that it is appropriate to use message of CAT fees on smaller firms,’’ 133 and
also note that the cost allocation takes traffic to assign fee tiers to broker- provides predictability of payment
into account that there are dealers.127 The Participants state that obligations.134 The Participants also
approximately 24 times more Industry charging Execution Venues based on state that the fixed-fee approach
Members that would report to the CAT message traffic, on the other hand, will provides elasticity to take into account
than Execution Venues.120 result in large and small Execution any changes in message traffic levels
Tiering Methodology Venues paying comparable fees as both through the use of predefined fixed
types of Execution Venues produce percentages instead of fixed volume
Two commenters believe that the similar amounts of message traffic.128
proposed tiering methodology is thresholds, and would not likely cause
The Participants believe such a result CAT Reporters to change their behavior
inequitable and unreasonable.121 Both would be inequitable; therefore, they
commenters raise concerns that the tiers (and impact liquidity) to avoid being
decided to base fees for Execution placed in a higher tier.135
will be applied inequitably because Venues and broker-dealers on different
Industry Members will be assessed fees criteria.129 Options Market-Maker Fees
based on their message traffic (the In response to a commenter’s concern One commenter believes that the
biggest cost component of the CAT), that the Participants only established proposed fees will be unsustainable for
113 See Cerny & O’Malley Letter, supra note 23, 122 See FIA Letter, supra note 23, at 3; SIFMA
small options market-makers.136 The
at 2. Letter, supra note 23, at 4 (stating ‘‘the Plan
commenter explains that because the
114 See FIA Letter, supra note 23, at 3. Participants proposals inexplicably propose a
130 See id. at 13. The Participants also state that,
115 See MFA Letter, supra note 23, at 2. tiering mechanism for themselves that is based on
116 See Response from Participants, supra note 23, not their relative impact to the CAT system, but unlike for Industry Members, the data for Execution
at 5. instead on their relative market share’’). Venues ‘‘did not suggest a break point(s) for the
117 See id. 123 See SIFMA Letter, supra note 23, at 4. markets with less than 1% market share that would
118 See id. at 15. 124 See id. indicate an appropriate threshold for creating a new
125 See FIA Letter, supra note 23, at 3; see also tier or tiers.’’ Id.
asabaliauskas on DSKBBXCHB2PROD with NOTICES
119 See id. The Participants note that ‘‘the
131 See id. at 14.
proposed funding model estimates total fees for SIFMA Letter, supra note 23, at 4.
126 See FIA Letter, supra note 23, at 3. 132 See id.; Section 11.2(c) of the CAT NMS Plan.
associated Participant complexes that are in several
133 See Response from Participants, supra note 23,
cases nearly two to three times larger than the 127 See Response from Participants, supra note 23,
single largest broker-dealer complex.’’ See id. at 6. at 6. at 14.
120 See id. at 15. The Commission notes that the 128 See id. at 6. 134 See id.
Notice stated that there are approximately 25 times 129 See id. The Participants also explain that, 135 See id.
more Industry Members expected to report to the while ATSs have varying levels of message traffic, 136 See Cerny & O’Malley Letter, supra note 23,
CAT than Execution Venues. See Notice, supra note they operate similarly to exchanges and therefore at 1. The commenter notes that options market-
16, at 23109. were categorized as Execution Venues. See id. at 6– makers have an obligation to quote ‘‘hundreds of
121 See SIFMA Letter; FIA Letter, supra note 23. 7. Continued
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![31664 Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Notices
nature of their business requires the Participants intend to charge them CAT Participants explain that two fee tiers
generation of quotes, the proposed fees.145 for Execution Venues were appropriate
assessment of fees based on message because adding tiers would
ATS Fees
traffic will place small options market- ‘‘compromise the comparability of fees
makers in the top Industry Member fee One commenter objects to the between Execution Venues and Industry
tiers, ‘‘[a]lthough this category of broker- proposed fees for ATSs, which are the Members with the most CAT-related
same fees as Participants under the activity.’’ 152 The Participants also state
dealer is relatively small in terms of net
proposals, as unreasonable, because it that they considered adding more than
worth . . . .’’ 137 The commenter notes
believes the fees would result a two tiers of Execution Venue fees, but
that the top three tier fees for Industry significant burden on small ATSs and a that doing so would result greatly
Members are comparable to the largest barrier to entry for new ATSs that increase the fees imposed on Tier 1
equity Execution Venues, which it states would not similarly apply to the Equity Execution Venues and ‘‘diminish
is neither equitable nor fair.138 The Participants.146 comparability between Execution
commenter also believes that smaller Another commenter objects to the Venues and Industry Members in a
broker-dealers, such as options market- proposals’ treatment of smaller Equity manner that would be difficult to justify
makers and other electronic trading Execution Venues (such as low volume under the funding model.’’ 153
firms, will be in the top fee tiers, while ATSs), opining that such treatment is
larger ‘‘full-service’’ firms that produce unfair and anti-competitive.147 The OTC Equity Securities Execution
fewer electronic messages would be in commenter also argues that smaller Venues
the lower fee tiers.139 The commenter Execution Venues that were assigned to One commenter objects to the
argues that this result is not equitable or the second fee tier would be required to proposals’ treatment of Execution
fair to smaller market participants.140 pay two-thirds of the fees allocated to Venues for OTC Equity securities,
‘‘the enormous NYSE or Nasdaq opining that it is unfair and anti-
Additionally, the commenter believes exchanges.’’ 148 This commenter competitive.154 The commenter
that charging Industry Members on the suggests adding at least one tier for particularly objects to the assignment of
basis of message traffic will small ATSs executing in the aggregate OTC Link ATS to the first fee tier of
disproportionately impact options less than 1% of NMS stocks (based on Execution Venues with large Execution
market-makers because, unlike for trade volume), as well as for ATSs Venues for NMS Stocks.155 The
equities, message traffic would include executing OTC Equity securities, and commenter states that OTC Link ATS
options strikes and series.141 Further, allocating approximately 1.5% of the was placed in the first CAT fee tier
the commenter notes that options total costs assigned to all Execution because fee tier assignments are
market-makers have continuous quoting Venues to that tier.149 inappropriately based on market share
obligations imposed by the exchanges, In response to the comment noting calculated from share volume.156 The
and consequently, expected increases in that charging ATSs the same CAT fees commenter states that the number of
the options classes listed by the as Execution Venues would result in a trades in OTC Equity Securities is
exchanges will increase CAT fees for significant burden on smaller ATSs and relatively small,157 as opposed to share
options market-makers.142 The act as a barrier to entry, the Participants volume ‘‘due to the disproportionately
commenter adds that the proposed fees reiterate that two fee tiers for Execution large number of shares being traded on
may impact the ability of small options Venues were appropriate because the OTC equity market as compared to
market-makers to provide liquidity and adding tiers would ‘‘compromise the the NMS market. . . .’’ 158 The
comparability of fees between Execution commenter explains that many OTC
that such Industry Members may choose
Venues and Industry Members with the Equity Securities are priced at less than
to leave the market-making business in
most CAT-related activity. . . . one dollar—and a significant number at
order to avoid quoting requirements.143 [C]reating additional tiers could have less than one penny—and that low-
In their response, the Participants unintended consequences on the priced shares tend to trade in larger
explain that since message traffic is a funding model such as creating greater quantities.159 Because the fee tiers are
major cost component for CAT, they discrepancies between the tiers.’’ 150 based on market share calculated from
believe it is an appropriate basis for The Participants also explain that they share volume, the commenter points out
assigning Industry Member fee tiers.144 decided to treat Execution Venues and that OTC Link ATS has the greatest
The Participants note that options ATSs in the same way because of the market share of all of the Execution
market-makers will produce a large similarities of their business models and Venues in both NMS Stocks and OTC
amount of message traffic to be estimated burden on CAT.151 Equity Securities at 29.90% and
processed by the CAT, so the In response to the comment
recommending the addition of a tier for 152 See id. at 16.
small ATSs executing in the aggregate 153 See id.
154 See OTC Markets Letter, supra note 23, at 1–
less than 1% of NMS stocks, the
thousands of options series’’ and that this fact was 2.
155 See
id. at 1, 3, 5.
acknowledged by the Commission, which exempted 145 See
id. at 17 n. 96; see also note 41, supra. 156 See
them from submitting their quotes to the Central 146 See SIFMA Letter, supra note 23, at 4. SIFMA
id. at 6–8. The commenter states that
Repository. See id. at 3; see also note 41 supra. ‘‘[s]hare volume is an inappropriate method for
states that Tier 2 Execution Venues will produce determining market share, because the costs of
137 See Cerny & O’Malley Letter, supra note 23,
significantly more reports to CAT than Tier 2 ATSs, operating the CAT are not correlated with the
asabaliauskas on DSKBBXCHB2PROD with NOTICES
at 1. but points out that Tier 2 Execution Venues and number of shares traded in any particular Execution
138 See id. at 3. Tier 2 ATSs will be subject to the same CAT Fees. Venue. Instead, CAT’s costs are impacted by the
139 See id. at 4. See id. number of orders and executions.’’ See id. at 6. The
147 See OTC Markets Letter, supra note 23, at 1–
140 See id. commenter recommends using the number of trades
2. in lieu of share volume, or dollar volume instead
141 See id. at 2.
148 See id. at 9. of share volume, for determining market share. See
142 See id. at 3.
149 See id. id. at 7–8.
143 See id. at 3, 4, 5. 150 See Response from Participants, supra note 23, 157 See id. at 4.
144 See Response from Participants, supra note 23, at 16. 158 See id. at 7.
at 6, 17. 151 See id. at 6–7. 159 See id.
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![Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Notices 31665
accordingly was assigned to the same volume, as the basis for Execution using its facilities;’’ 174 (2) Section
fee tier as exchanges that the commenter Venue CAT Fees.167 6(b)(5) and Section 15A(b)(6), which
claims have approximately 20 times require the rules of an exchange or a
IV. Suspension of the Proposed Rule
greater trading revenues than OTC Link national securities association to, among
Changes
ATS.160 The commenter believes that other things, ‘‘promote just and
this unfairly burdens the market for Pursuant to Section 19(b)(3)(C) of the equitable principles of trade . . . protect
OTC Equity Securities.161 The Act,168 at any time within 60 days of the investors and the public interest; and [to
commenter recommends placing date of filing of an immediately effective be] not designed to permit unfair
Execution Venues for OTC Equity proposed rule change in accordance discrimination between customers,
with Section 19(b)(1) of the Act,169 the issuers, brokers, or dealers;’’ 175 and (3)
Securities in separate tiers from large
Commission summarily may Section 6(b)(8) and Section 15A(b)(9),
Execution Venues for NMS Stocks and
temporarily suspend the change in the which require the rules of an exchange
allocating costs to tiers based on number
rules of a self-regulatory organization or a national securities association to
of trades to align tiers with CAT usage made thereby if it appears to the ‘‘not impose any burden on competition
and costs.162 Specifically, the Commission that such action is not necessary or appropriate in
commenter believes that there should be necessary or appropriate in the public furtherance of the purposes of this
separate tiers for the Execution Venues interest, for the protection of investors, chapter.’’ 176
for OTC Equity Securities with or otherwise in furtherance of the In temporarily suspending the
approximately 0.5% of the total costs purposes of the Act. The Commission proposed rule changes, the Commission
assigned to all Execution Venues believes a temporary suspension of the intends to consider whether, among
allocated to that tier, or at least one proposed rule changes is warranted other things, the following aspects of the
additional tier for small ATSs executing here.170 proposed rule changes are consistent
in the aggregate less than 1% of NMS In particular, the Commission finds with the Act:
stocks (based on trade volume) and OTC that it is appropriate in the public • The allocation of 75% of total costs
Equity securities with approximately interest, for the protection of investors, recovered to Industry Members (other
1.5% of the total costs assigned to all and otherwise in furtherance of the than Execution Venue ATSs) and 25%
Execution Venues allocated to that purposes of the Act, to temporarily to Execution Venues, and the
tier.163 suspend the proposed rule changes to comparability of fees between the
consider whether the proposed rule largest Industry Members and Tier 1
In their response, the Participants Execution Venues. The Participants
changes satisfy the standards under the
state that the CAT NMS Plan provides stated that this 75%/25% division
Act and the rules thereunder requiring,
for the use of share volume to calculate maintains the greatest level of
among other things, that the rules of an
market share for Execution Venues that exchange or a national securities comparability across the funding model,
execute transactions in NMS Stocks or association provide for the equitable keeping in view that comparability
OTC Equity Securities.164 The allocation of reasonable fees among should consider affiliations among or
Participants explain that two fee tiers members, issuers, and other persons between CAT Reporters.177 The
for Execution Venues were appropriate using its facilities; promote just and Participants explained that the cost
because adding tiers would equitable principles of trade; protect allocation establishes fees for the largest
‘‘compromise the comparability of fees investors and the public interest; do not Industry Members that are comparable
between Execution Venues and Industry permit unfair discrimination between to the largest Equity Execution Venues
Members with the most CAT-related customers, issuers, brokers or dealers; and Options Execution Venues.178 In
activity’’ 165 and that they considered and do not impose any burden on addition, they stated that the cost
adding more than two tiers of Execution competition not necessary or allocation establishes fees for Execution
Venue fees, but that doing so would appropriate in furtherance of the Venue complexes that are comparable to
result greatly increase the fees imposed purposes of the Act.171 those of Industry Member complexes.179
on Tier 1 Equity Execution Venues and The proposed rule changes are subject Furthermore, the Participants noted that
‘‘diminish comparability between to Section 6 of the Act in the case of the
174 15 U.S.C. 78f(b)(4).
Execution Venues and Industry national securities exchanges and
175 15 U.S.C. 78f(b)(5); 15 U.S.C. 78o–3(b)(6).
Members in a manner that would be Section 15A of the Act in the case of the 176 15 U.S.C. 78f(b)(8); 15 U.S.C. 78o–3(b)(9).
difficult to justify under the funding national securities association, 177 See, e.g., Notice, supra note 16, at 23109. The
model.’’ 166 The Participants believe that including: (1) Section 6(b)(4) 172 and CAT NMS Plan funding principles state that, in
the CAT Fees do not impose an Section 15A(b)(5),173 which require the establishing the funding of the Company, the
unnecessary or inappropriate burden on rules of an exchange or a national Operating Committee shall seek to establish a tiered
securities association to ‘‘provide for the fee structure in which the fees charged to: (i) CAT
competition on OTC Equity Securities Reporters that are Execution Venues, including
equitable allocation of reasonable dues, ATSs, are based upon the level of market share; (ii)
Execution Venues in light of the
fees, and other charges among its Industry Members’ non-ATS activities are based
potential negative impact of increasing
members and issuers and other persons upon message traffic; and (iii) the CAT Reporters
the number of fee tiers applicable to with the most CAT-related activity (measured by
Execution Venues and the decision to 167 See
id.
market share and/or message traffic, as applicable)
use market share, as calculated by share 168 15
are generally comparable (where, for these
U.S.C. 78s(b)(3)(C). comparability purposes, the tiered fee structure
asabaliauskas on DSKBBXCHB2PROD with NOTICES
169 15 U.S.C. 78s(b)(1).
takes into consideration affiliations between or
170 For purposes of temporarily suspending the
160 See id. at 3. among CAT Reporters, whether Execution Venues
161 See id. proposed rule changes, the Commission has and/or Industry Members). See Section 11.2(c) of
162 See id. at 8.
considered the proposed rules’ impact on the CAT NMS Plan.
efficiency, competition, and capital formation. See 178 See, e.g., Notice, supra note 16, at 23109.
163 See id. at 9.
15 U.S.C. 78c(f). 179 See id. The Participants also represented that
164 See Response from Participants, supra note 23, 171 See 15 U.S.C. 78f(b)(4), (5), and (8); 15 U.S.C.
other possible allocations of CAT costs led to much
at 16. 78o–3(b)(5), (6), and (9). higher fees for larger Industry Members than for
165 See id. 172 15 U.S.C. 78f(b)(4).
larger Execution Venues or vice versa and/or much
166 See id. 173 15 U.S.C. 78o–3(b)(5). Continued
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![31666 Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Notices
the allocation of total CAT costs tiering under the CAT funding model issuers, brokers, or dealers;’’ 193 (3)
recovered recognizes that there are both prior to CAT reporting and once Section 6(b)(8) and Section 15A(b)(9),
approximately 25 times more Industry CAT reporting commences.186 which require the rules of an exchange
Members expected to report to the CAT or a national securities association to
than Execution Venues.180 V. Proceedings To Determine Whether ‘‘not impose any burden on competition
• The determination to rely on market To Approve or Disapprove the not necessary or appropriate in
share, as calculated by share volume in Proposed Rule Changes furtherance of the purposes of this
NMS Stocks and OTC Equity Securities, chapter;’’ 194 and (4) the funding
In addition to temporarily suspending
to place Equity Execution Venues for principles set forth in the CAT NMS
the proposal, the Commission also
OTC Equity Securities and Execution Plan, which state that the Operating
hereby institutes proceedings pursuant
Venues representing less than 1% NMS Committee shall seek, among other
to Sections 19(b)(3)(C) 187 and 19(b)(2) of
market share (primarily lower volume things, ‘‘to establish an allocation of the
ATSs) in the same fee tier structure as the Act 188 to determine whether the
Company’s related costs among
Equity Execution Venues for NMS Exchange’s proposed rule change
Participants and Industry Members that
Stocks, as well as the determination to should be approved or disapproved.
is consistent with the Exchange Act
set two fee tiers and charge Equity Institution of proceedings does not
taking into account . . . distinctions in
Execution Venues in Tier 2 indicate that the Commission has
the securities trading operations of
approximately two-thirds of the fees reached any conclusions with respect to
Participants and Industry Members and
allocated to Equity Execution Venues in any of the issues involved. Rather, as
their relative impact upon the Company
Tier 1. The CAT NMS Plan permits the stated below, the Commission seeks and
resources and operations’’ 195 and ‘‘to
Operating Committee to establish at encourages interested persons to
avoid any disincentives such as placing
least two and no more than five tiers of provide comments on the proposed rule
an inappropriate burden on competition
fixed fees for Equity Execution change to inform the Commission’s
and a reduction in market quality.’’ 196
Venues.181 The Participants explained analysis of whether to approve or
The Commission believes that the
that the Operating Committee disapprove the proposed rule change.
proposed rule changes raise questions as
determined to establish two tiers for Pursuant to Section 19(b)(2)(B) of the to whether the allocation of the total
Equity Execution Venues, rather than a Act,189 the Commission is hereby CAT costs recovered between and
larger number of tiers, because they providing notice of the grounds for among Industry Members and Execution
believed that two tiers were sufficient to disapproval under consideration. The Venues is reasonable, equitable, and not
distinguish between the smaller number Commission believes that instituting unfairly discriminatory under Section 6
of Equity Execution Venues based on proceedings will allow for additional and Section 15A of the Act. In
market share.182 The Participants added analysis of, and input from commenters particular, the Commission wishes to
that the incorporation of additional with respect to, the proposed rule consider further whether the allocation
Equity Execution Venue tiers will result change’s consistency with: (1) Section of 75% of total CAT costs recovered to
in significantly higher fees for Tier 1 6(b)(4) 190 and Section 15A(b)(5),191 Industry Members (other than Execution
Equity Execution Venues and diminish which require the rules of an exchange Venue ATSs) and 25% to Execution
comparability between Execution or a national securities association to Venues is equitable and not unfairly
Venues and Industry Members.183 The ‘‘provide for the equitable allocation of discriminatory, and whether the CAT
Participants stated that the Operating reasonable dues, fees, and other charges Fees are consistent with the funding
Committee considered the distribution among its members and issuers and principles set forth in the CAT NMS
of Execution Venues, grouped together other persons using its facilities;’’ 192 (2) Plan, which state that, in establishing
Execution Venues with similar levels of Section 6(b)(5) and Section 15A(b)(6), the funding of the Company, the
market share of share volume, and which require the rules of an exchange Operating Committee shall seek, among
determined that it was simpler and or a national securities association to, other things, ‘‘to establish an allocation
more appropriate to have fewer, rather among other things, ‘‘promote just and of the Company’s related costs among
than more, Execution Venue fee tiers to equitable principles of trade . . . protect Participants and Industry Members that
distinguish between Execution investors and the public interest; and [to is consistent with the Exchange Act
Venues.184 be] not designed to permit unfair taking into account . . . distinctions in
• The inclusion of options market- discrimination between customers, the securities trading operations of
maker quotes in message traffic for
Participants and Industry Members and
purposes of calculating the appropriate 186 See
id. at 23106 n.36. their relative impact upon the Company
fee tier for Industry Members. The 187 15
U.S.C. 78s(b)(3)(C). Once the Commission resources and operations’’ 197 and ‘‘to
Participants stated that, under the temporarily suspends a proposed rule change, avoid any disincentives such as placing
proposals, each Industry Member will Section 19(b)(3)(C) of the Act requires that the
Commission institute proceedings under Section an inappropriate burden on competition
be placed into one of nine tiers of fixed
19(b)(2)(B) to determine whether a proposed rule and a reduction in market quality.’’ 198
fees, based on message traffic for a change should be approved or disapproved. The Commission also believes the
defined period.185 Further, the 188 15 U.S.C. 78s(b)(2).
proposed rule changes raise questions as
Participants stated that options market- 189 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of
to whether the Participants have
maker quotes will be included in the the Act also provides that proceedings to determine
whether to disapprove a proposed rule change must addressed the impact of the proposed
calculation of total message traffic for
be concluded within 180 days of the date of tiers on Industry Members who are
asabaliauskas on DSKBBXCHB2PROD with NOTICES
options market-makers for purposes of publication of notice of the filing of the proposed options market makers, who are
rule change. See id. The time for conclusion of the required to continually quote a two-
higher fees for Industry Member complexes than for proceedings may be extended for up to 60 days if
Execution Venue complexes or vice versa. See id. the Commission finds good cause for such
180 See id. 193 15 U.S.C. 78f(b)(5); 15 U.S.C. 78o–3(b)(6).
extension and publishes its reasons for so finding,
181 See Section 11.3(a)(i) of the CAT NMS Plan. 194 15 U.S.C. 78f(b)(8); 15 U.S.C. 78o–3(b)(9).
or if the exchange consents to the longer period. See
182 See, e.g., Notice, supra note 16, at 23107. id. 195 Section 11.2(b) of the CAT NMS Plan.
183 See id. 190 15 U.S.C. 78f(b)(4). 196 Section 11.2(e) of the CAT NMS Plan.
184 See id. 191 15 U.S.C. 78o–3(b)(5). 197 Section 11.2(b) of the CAT NMS Plan.
185 See id. at 23104. 192 15 U.S.C. 78f(b)(4). 198 Section 11.2(e) of the CAT NMS Plan.
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![31668 Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Notices
All submissions should refer to any of: VII. Conclusion I. Self-Regulatory Organization’s
File Nos. SR–BatsBYX–2017–11; SR– Statement of the Terms of Substance of
BatsBZX–2017–38; SR–BatsEDGA– It is therefore ordered, pursuant to the Proposed Rule Change
2017–13; SR–BatsEDGX–2017–22; SR– Section 19(b)(3)(C) of the Act,204 that
The Exchange is filing a proposal to
BOX–2017–16; SR–BX–2017–023; SR– File Nos. SR–BatsBYX–2017–11; SR–
amend the MIAX Options Fee Schedule
C2–2017–017; SR–CBOE–2017–040; BatsBZX–2017–38; SR–BatsEDGA– (the ‘‘Fee Schedule’’) to clarify the
SR–CHX–2017–08; SR–FINRA–2017– 2017–13; SR–BatsEDGX–2017–22; SR– manner in which the Exchange assesses
011; SR–GEMX–2017–17; SR–IEX– BOX–2017–16; SR–BX–2017–023; SR– its Options Regulatory Fee (‘‘ORF’’), and
2017–16; SR–ISE–2017–45; SR–MIAX– C2–2017–017; SR–CBOE–2017–040; also to align its ORF rule text to rule text
2017–18; SR–MRX–2017–04; SR– SR–CHX–2017–08; SR–FINRA–2017– recently adopted by the Exchange’s
NASDAQ–2017–046; SR–NYSE–2017– 011; SR–GEMX–2017–17; SR–IEX– affiliate, MIAX PEARL, LLC (‘‘MIAX
22; SR–NYSEArca–2017–52; SR– 2017–16; SR–ISE–2017–45; SR–MIAX– PEARL’’), with respect to its ORF.3
NYSEMKT–2017–26; SR–PEARL–2017– 2017–18; SR–MRX–2017–04; SR– The text of the proposed rule change
20; or SR–PHLX–2017–37. The file NASDAQ–2017–046; SR–NYSE–2017– is available on the Exchange’s Web site
numbers should be included on the 22; SR–NYSEArca–2017–52; SR– at http://www.miaxoptions.com/rule-
NYSEMKT–2017–26; SR–PEARL–2017– filings, at MIAX’s principal office, and
subject line if email is used. To help the
20; and SR–PHLX–2017–37 be and at the Commission’s Public Reference
Commission process and review your Room.
comments more efficiently, please use hereby are, temporarily suspended. In
only one method. The Commission will addition, the Commission is instituting II. Self-Regulatory Organization’s
post all comments on the Commission’s proceedings to determine whether the Statement of the Purpose of, and
Internet Web site (http://www.sec.gov/ proposed rule changes should be Statutory Basis for, the Proposed Rule
rules/sro.shtml). Copies of the approved or disapproved. Change
submission, all subsequent For the Commission, by the Division of In its filing with the Commission, the
amendments, all written statements Trading and Markets, pursuant to delegated Exchange included statements
with respect to the proposed rule authority.205 concerning the purpose of and basis for
changes that are filed with the Brent J. Fields, the proposed rule change and discussed
Commission, and all written Secretary. any comments it received on the
communications relating to the proposed rule change. The text of these
[FR Doc. 2017–14245 Filed 7–6–17; 8:45 am]
proposed rule changess between the statements may be examined at the
BILLING CODE 8011–01–P
Commission and any person, other than places specified in Item IV below. The
those that may be withheld from the Exchange has prepared summaries, set
forth in sections A, B, and C below, of
public in accordance with the SECURITIES AND EXCHANGE the most significant aspects of such
provisions of 5 U.S.C. 552, will be COMMISSION statements.
available for Web site viewing and
printing in the Commission’s Public [Release No. 34–81063; File No. SR–MIAX–
A. Self-Regulatory Organization’s
Reference Room, 100 F Street NE., 2017–31]
Statement of the Purpose of, and the
Washington, DC 20549, on official Statutory Basis for, the Proposed Rule
business days between the hours of Self-Regulatory Organizations; Miami Change
10:00 a.m. and 3:00 p.m. Copies of such International Securities Exchange, 1. Purpose
filing also will be available for LLC; Notice of Filing and Immediate Currently, the Exchange charges an
inspection and copying at the principal Effectiveness of a Proposed Rule ORF in the amount of $0.0045 per
office of the Participants. All comments Change To Amend its Fee Schedule contract side. The proposed rule change
received will be posted without change; Concerning the Options Regulatory does not change the amount of the ORF,
the Commission does not edit personal Fee but instead modifies the rule text to
identifying information from clarify how the ORF is assessed and
submissions. You should submit only June 30, 2017.
collected. The proposed rule change
information that you wish to make Pursuant to the provisions of Section also aligns the ORF rule text of the
publicly available. All submissions 19(b)(1) of the Securities Exchange Act Exchange to rule text recently adopted
should refer to any of: File Nos. SR– of 1934 (‘‘Act’’) 1 and Rule 19b–4 by the Exchange’s affiliate, MIAX
BatsBYX–2017–11; SR–BatsBZX–2017– thereunder,2 notice is hereby given that PEARL, with respect to its ORF.4
38; SR–BatsEDGA–2017–13; SR– on June 23, 2017, Miami International The per-contract ORF will continue to
BatsEDGX–2017–22; SR–BOX–2017–16; Securities Exchange LLC (‘‘MIAX be assessed by MIAX Options to each
SR–BX–2017–023; SR–C2–2017–017; Options’’ or ‘‘Exchange’’) filed with the MIAX Options Member for all options
SR–CBOE–2017–040; SR–CHX–2017– Securities and Exchange Commission transactions, including Mini Options,
08; SR–FINRA–2017–011; SR–GEMX– (‘‘Commission’’) a proposed rule change cleared or ultimately cleared by the
2017–17; SR–IEX–2017–16; SR–ISE– as described in Items I, II, and III below, Member which are cleared by the
2017–45; SR–MIAX–2017–18; SR– which Items have been prepared by the Options Clearing Corporation (‘‘OCC’’)
asabaliauskas on DSKBBXCHB2PROD with NOTICES
MRX–2017–04; SR–NASDAQ–2017– Exchange. The Commission is 3 See Securities Exchange Act Release Nos. 80035
046; SR–NYSE–2017–22; SR– publishing this notice to solicit (February 14, 2017), 82 FR 11272 (February 21,
NYSEArca–2017–52; SR–NYSEMKT– comments on the proposed rule change 2017) (SR–PEARL–2017–09); 80035 (March 30,
2017–26; SR–PEARL–2017–20; or SR– from interested persons. 2017), 82 FR 18045 (April 10, 2017) (SR–PEARL–
2017–15); 80875 (June 7, 2017), 82 FR 27096 (June
PHLX–2017–37 and should be 13, 2017) (SR–PEARL–2017–26). The replacement
submitted on or before July 28, 2017. 204 15U.S.C. 78s(b)(3)(C). filings did not increase or decrease the amount of
205 17CFR 200.30–3(a)(57) and (58).
Rebuttal comments should be submitted the ORF, but rather clarified the application of the
1 15 U.S.C. 78s(b)(1). ORF.
by August 11, 2017. 2 17 CFR 240.19b–4. 4 Id.
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Document Created: 2017-07-07 02:20:13
Document Modified: 2017-07-07 02:20:13
| 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 31656 |
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