82 FR 35005 - Joint Industry Plan; Order of Summary Abrogation of Amendment No. 2 to the National Market System Plan Governing the Consolidated Audit Trail by Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc., Investors' Exchange LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE Arca, Inc., NYSE MKT LLC and NYSE National, Inc.
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 143 (July 27, 2017)
Federal Register Volume 82, Issue 143 (July 27, 2017)
| Page Range | 35005-35013 | |
| FR Document | 2017-15768 |
[Federal Register Volume 82, Number 143 (Thursday, July 27, 2017)] [Notices] [Pages 35005-35013] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-15768] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81189; File No. 4-698] Joint Industry Plan; Order of Summary Abrogation of Amendment No. 2 to the National Market System Plan Governing the Consolidated Audit Trail by Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc., Investors' Exchange LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE Arca, Inc., NYSE MKT LLC and NYSE National, Inc. July 21, 2017. I. Introduction Notice is hereby given that the Securities and Exchange Commission (``Commission''), pursuant to Section 11A of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 608 thereunder,\2\ is summarily abrogating Amendment No. 2 to the National Market System Plan Governing the Consolidated Audit Trail (``CAT NMS Plan'' or ``Plan''). --------------------------------------------------------------------------- \1\ 15 U.S.C. 78k-1. \2\ 17 CFR 242.608. --------------------------------------------------------------------------- On May 23, 2017 \3\ participants of the CAT NMS Plan (``Participants'') \4\ filed with the Commission a proposal to amend the Plan (``Amendment No. 2''),\5\ pursuant to Section 11A of the Act,\6\ and Rule 608 thereunder.\7\ The Amendment, which was effective upon filing pursuant to Rule 608(b)(3)(i) of Regulation NMS,\8\ sets forth the Consolidated Audit Trail (``CAT'') fees to be paid by the Participants. --------------------------------------------------------------------------- \3\ The Participants initially submitted the amendment on May 9, 2017, but subsequently withdrew the amendment and refiled the current submission on May 23, 2017. \4\ The Participants are: Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc., Investors' Exchange LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE Arca, Inc., NYSE MKT LLC and NYSE National, Inc. \5\ See Letter from Michael Simon, Chair, CAT NMS Plan Operating Committee, to Brent J. Fields, Secretary, Commission, dated May 22, 2017 (``Letter''). See also Securities Exchange Act Release No. 80930 (June 14, 2017), 82 FR 28180 (June 20, 2017) (``Notice''), available at https://www.sec.gov/rules/sro/nms/2017/34-80930.pdf. \6\ 15 U.S.C. 78k-1. \7\ 17 CFR 242.608. \8\ 17 CFR 242.608(b)(3)(i). --------------------------------------------------------------------------- II. Description of the Amendment Prior to filing Amendment No. 2, the Participants filed the CAT NMS Plan with the Commission,\9\ pursuant to Section 11A of the Act \10\ and Rule 608 of Regulation NMS thereunder,\11\ to create, implement and maintain the CAT. The Plan was published for comment in the Federal Register on May 17, 2016,\12\ and approved by the Commission, as modified, on November 15, 2016.\13\ 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'').\14\ --------------------------------------------------------------------------- \9\ 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. \10\ 15 U.S.C. 78k-1. \11\ 17 CFR 242.608. \12\ Securities Exchange Act Release No. 77724 (April 27, 2016), 81 FR 30614 (May 17, 2016) (``CAT NMS Plan Notice''). \13\ Securities Exchange Act Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016) (``Approval Order''). \14\ 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 [[Page 35006]] affiliations between or among CAT Reporters, whether Execution Venues and/or Industry Members).'' \15\ 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 [ ] 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.'' \16\ --------------------------------------------------------------------------- \15\ 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 5, at 28181-28183 for additional description of the CAT NMS Plan requirements. \16\ See Section 11.2(b) and (e) of the CAT NMS Plan. --------------------------------------------------------------------------- The Participants submitted this Amendment No. 2 to the Plan to establish the CAT Fees to be charged to themselves, as Execution Venues.\17\ In addition, the Participants submitted proposed rule changes to adopt fees to be charged to Industry Members, including Industry Members that are Execution Venue ATSs (``Industry Member Fee Filings''), which are described below.\18\ The text of the Industry Member Fee Filings is substantially similar to Amendment No. 2. On June 30, 2017, the Commission temporarily suspended the Industry Member Fee Filings and instituted proceedings to determine whether those filings should be approved or disapproved.\19\ --------------------------------------------------------------------------- \17\ See Letter, supra note 5. See also Notice, supra note 5. 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).'' \18\ For additional details regarding these fees, see, e.g., Securities Exchange Act Release Nos. 80675 (May 15, 2017), 82 FR 23100 (May 19, 2017) (SR-MIAX-2017-18); 80676 (May 15, 2017), 82 FR 23083 (May 19, 2017) (SR-PEARL-2017-20); 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); 80694 (May 16, 2017), 82 FR 23416 (May 22, 2017) (SR-NYSEMKT-2017-26); 80710 (May 17, 2017), 82 FR 23639 (May 23, 2017) (SR-FINRA-2017-011); 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); 80725 (May 18, 2017), 82 FR 23935 (May 24, 2017) (SR-PHLX-2017-37); 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); 80784 (May 26, 2017), 82 FR 25448 (June 1, 2017) (SR-BatsEDGA-2017-13); 80809 (May 30, 2017), 82 FR 25837 (June 5, 2017) (SR-BatsBYX-2017-11); 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). \19\ See Securities Exchange Act Release No. 81067 (June 30, 2017), 82 FR 31656 (July 7, 2017). --------------------------------------------------------------------------- The Plan specifies 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.'' \20\ 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 [ ] Act'' and the ``avoid[ance of] any disincentives such as placing an inappropriate burden on competition and reduction in market quality.'' \21\ --------------------------------------------------------------------------- \20\ 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 5, at 28181-28183 for additional description of the CAT NMS Plan requirements. \21\ See Section 11.2(c) and (e) of the CAT NMS Plan. --------------------------------------------------------------------------- To establish the CAT Fees permitted by the Plan, the Participants submitted Amendment No. 2. As noted above, Amendment No. 2 adopted fees applicable to the Participants, as Execution Venues, which are described below.\22\ --------------------------------------------------------------------------- \22\ For additional details regarding these fees, see, e.g., Notice, supra note 5. --------------------------------------------------------------------------- A. Execution Venue Tiers 23 --------------------------------------------------------------------------- \23\ Amendment No. 2 establishes different tiers for Equity and Options Execution Venues. --------------------------------------------------------------------------- 1. NMS Stocks and OTC Equity Securities Amendment No. 2 establishes fixed fees to be paid by Execution Venues \24\ 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.\25\ --------------------------------------------------------------------------- \24\ See supra note 17. For purposes of determining the CAT Fees for ATSs, the Participants categorized ATSs (excluding ATSs that do not execute orders) as Execution Venues. The Commission notes that the CAT Fees for Execution Venue ATSs were proposed in the Industry Member Fee Filings and that Amendment No. 2 addresses fees applicable to the Participants, as Execution Venues. \25\ Section 11.3(a)(i) of the CAT NMS Plan; see also, e.g., Notice, supra note 5, at 28186. --------------------------------------------------------------------------- Under Amendment No. 2, 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'').\26\ 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'').\27\ --------------------------------------------------------------------------- \26\ See, e.g., Notice, supra note 5, at 28186. \27\ See, e.g., id. --------------------------------------------------------------------------- The following table sets forth the specific Equity Execution Venue Percentages and Equity Execution Recovery Allocations: \28\ --------------------------------------------------------------------------- \28\ 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 ----------------------------------------------- [[Page 35007]] Total................................................... 100 75 18.75 ---------------------------------------------------------------------------------------------------------------- 2. Listed Options Amendment No. 2 establishes 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.\29\ Under Amendment No. 2, 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'').\30\ 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'').\31\ --------------------------------------------------------------------------- \29\ Section 11.3(a)(ii) of the CAT NMS Plan; see also, e.g., Notice, supra note 5, at 28187. \30\ See, e.g., Notice, supra note 5, at 28187. \31\ See, e.g., id. --------------------------------------------------------------------------- The following table sets forth the specific Options Execution Venue Percentages and Options Execution Venue Recovery Allocations: \32\ --------------------------------------------------------------------------- \32\ 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.\33\ 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.\34\ --------------------------------------------------------------------------- \33\ See, e.g., id. at 28188. \34\ See, e.g., id. --------------------------------------------------------------------------- B. Industry Member Tiers Amendment No. 2 describes the fixed fees to be established by the Industry Member Fee Filings to be payable by Industry Members, based on message traffic.\35\ Each Industry Member (other than Execution Venue ATSs \36\) will be ranked by message traffic and assigned to one of nine tiers that have been predefined by percentages (the ``Industry Member Percentages'').\37\ 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'').\38\ --------------------------------------------------------------------------- \35\ 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 5, at 28183. \36\ The Participants defined ``Execution Venue ATSs'' as alternative trading systems that execute transactions in Eligible Securities. See, e.g., Notice, supra note 5, at 28181. \37\ See, e.g., id. at 2810328183. \38\ See, e.g., id. --------------------------------------------------------------------------- The following table sets forth the specific Industry Member Percentages and Industry Member Recovery Allocations:\39\ --------------------------------------------------------------------------- \39\ See, e.g., id. at 28184-5. ---------------------------------------------------------------------------------------------------------------- Percentage of Industry member tier Percentage of industry member Percentage of industry members recovery total 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.\40\ The Participants stated [[Page 35008]] 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.\41\ After an Industry Member begins reporting to the CAT, the Participants noted that ``message traffic'' will be calculated based on the Industry Member's Reportable Events.\42\ --------------------------------------------------------------------------- \40\ See, e.g., id. at 28185. 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-makers. See, e.g., Notice, supra note 5, at 28185 n.29. \41\ See, e.g., id. at 28185. \42\ 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. 31. --------------------------------------------------------------------------- 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.\43\ 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.\44\ --------------------------------------------------------------------------- \43\ See, e.g., id. at 28188. \44\ See, e.g., id. --------------------------------------------------------------------------- D. Fee Levels The Participants explained that the sum of the CAT Fees is designed to 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.\45\ 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. --------------------------------------------------------------------------- \45\ See, e.g., id. The Participants further noted that CAT- related costs incurred prior to November 21, 2016 will be addressed via a separate filing. See, e.g., id. at n.34. --------------------------------------------------------------------------- For Equity Execution Venues: \46\ --------------------------------------------------------------------------- \46\ See, e.g., id. at 28189. ---------------------------------------------------------------------------------------------------------------- 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: \47\ --------------------------------------------------------------------------- \47\ 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 ---------------------------------------------------------------------------------------------------------------- For Industry Members (other than Execution Venue ATSs): \48\ --------------------------------------------------------------------------- \48\ See, e.g., id. ---------------------------------------------------------------------------------------------------------------- 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 ---------------------------------------------------------------------------------------------------------------- E. Initial and Periodic Tier Reassignments The Operating Committee will assign fee tiers every three months based on market share or message traffic, as applicable, from the prior three months.\49\ 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.\50\ The Participants explained the Company [[Page 35009]] will calculate subsequent tier assignments using the three months of data prior to the relevant tri-monthly date.\51\ 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.\52\ 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.\53\ --------------------------------------------------------------------------- \49\ See, e.g., id. at 28194. \50\ 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 40-42 supra and accompanying text. \51\ See, e.g., Notice, supra note 5, at 28194. \52\ See, e.g., id. \53\ See, e.g., id. --------------------------------------------------------------------------- F. 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.'' \54\ 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.\55\ 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.\56\ The Participants further stated that any changes to the number of tiers in the funding model or the fees assigned to each tier will be filed with the Commission pursuant to Rule 608 of the Act and become effective in accordance with the requirements of Rule 608.\57\ --------------------------------------------------------------------------- \54\ See, e.g., id. \55\ See, e.g., id. \56\ 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. \57\ See, e.g., id. --------------------------------------------------------------------------- Pursuant to Rule 608(b)(3)(i) under Regulation NMS,\58\ the Participants designated Amendment No. 2 as establishing or changing a fee or other charge collected on their behalf in connection with access to, or use of, the facilities contemplated by the Plan. As a result, Amendment No. 2 was effective upon filing with the Commission. On June 14, 2017, the Commission issued notice of Amendment No. 2.\59\ --------------------------------------------------------------------------- \58\ 17 CFR 242.608(b)(3)(i). \59\ See supra note 5. --------------------------------------------------------------------------- III. Summary of Comments and Participants' Response While no comments were received on Amendment No. 2 to the CAT NMS Plan, the Commission received a number of comment letters on the Industry Member Fee Filings, and a response to such comments from the Participants. Because the text of the Industry Member Fee Filings is substantially similar to this Amendment No. 2, the Commission believes the comment letters are relevant to this Order and has summarized the comments on the Industry Member Fee Filings below.\60\ --------------------------------------------------------------------------- \60\ Since the Industry Member Fee Filings were designed to adopt fees to be charged to Industry Members to fund CAT, the Commission considered 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 the Industry Member Fee Filings and Amendment No. 2. 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. --------------------------------------------------------------------------- Necessity of the CAT One commenter asks whether the CAT is a ``worthwhile endeavor,'' \61\ 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.\62\ 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.\63\ 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.\64\ --------------------------------------------------------------------------- \61\ See FIA Letter, supra note 60, at 2. \62\ See id. See also Cerny & O'Malley Letter, supra note 60, at 4 (suggesting that the CAT will not capture any new violative activity not currently disclosed under current surveillance practices). \63\ See FIA Letter, supra note 60, at 2. \64\ See MFA Letter, supra note 60, 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.\65\ 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.\66\ 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.\67\ --------------------------------------------------------------------------- \65\ See Response from Participants, supra note 60, at 17. \66\ 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 60, at 18 n.103. \67\ See Response from Participants, supra note 60, 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.\68\ 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 incurred before the approval of the CAT NMS Plan.\69\ --------------------------------------------------------------------------- \68\ See SIFMA Letter, supra note 60, at 2-4. \69\ See FIA Letter, supra note 60, at 2-3; see also SIFMA Letter, supra note 60, at 3-4. --------------------------------------------------------------------------- In their response, the Participants state that Rule 613 of Regulation NMS (``Rule 613'') \70\ contemplates broker-dealers contributing to the funding of CAT.\71\ Because the CAT improves [[Page 35010]] regulatory oversight of the securities markets, the Participants believe that it would be equitable to require broker-dealers and Participants to fund the CAT.\72\ The Participants further believe that Rule 613 and the Approval Order \73\ 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.\74\ --------------------------------------------------------------------------- \70\ 17 CFR 242.613. \71\ See Response from Participants, supra note 60, at 3. \72\ See id. at 4. \73\ See supra note 13. \74\ See Response from Participants, supra note 60, at 7-8. --------------------------------------------------------------------------- Industry Member Input Three commenters argue that the funding decisions would have benefited from greater involvement from Industry Members.\75\ Two commenters assert that the Participants' development of the funding model should have involved collaboration with the broker-dealer community.\76\ 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.\77\ Another commenter believes that the proposed fees lack substantive input from the Industry Members.\78\ 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.\79\ --------------------------------------------------------------------------- \75\ See SIFMA Letter; FIA Letter; MFA Letter, supra note 60. \76\ See SIFMA Letter, supra note 60, at 2-3; see FIA Letter, supra note 60, at 2 (stating ``we struggle to understand how excluding other market participants and taking input only from the Plan Participants is anything but prejudicial''). \77\ See FIA Letter, supra note 60, at 2. \78\ See SIFMA Letter, supra note 60, at 2-3. \79\ See MFA Letter, supra note 60, 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 \80\ 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.\81\ Further, the Participants assert that the proposed fees provide the opportunity for public comment on the fees.\82\ --------------------------------------------------------------------------- \80\ See supra note 12. \81\ See Response from Participants, supra note 60, at 2-3. \82\ See id. at 2. --------------------------------------------------------------------------- Conflicts of Interest Three commenters raise concerns about Participant conflicts of interest in setting the CAT fees.\83\ One commenter argues that, through the Industry Member Fee Filings, 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.\84\ 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.\85\ 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.\86\ --------------------------------------------------------------------------- \83\ See SIFMA Letter, FIA Letter, MFA Letter, supra note 60. \84\ See SIFMA Letter, supra note 60, at 2-3. \85\ See id. at 2-3. \86\ See id. --------------------------------------------------------------------------- Another commenter argues that the Participants have a clear conflict of interest when setting their own cost allocation.\87\ 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.\88\ 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.\89\ --------------------------------------------------------------------------- \87\ See FIA Letter, supra note 60, at 2. \88\ 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. \89\ See MFA Letter, supra note 60, 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).\90\ 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.\91\ 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.\92\ --------------------------------------------------------------------------- \90\ See Response from Participants, supra note 60, at 11. \91\ See id. \92\ 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.\93\ --------------------------------------------------------------------------- \93\ See id. at 11, 18. --------------------------------------------------------------------------- Allocation of Fees Several commenters raise concerns about the proposed allocation of CAT fees.\94\ One commenter argues that the Industry Member Fee Filings are not an equitable allocation of reasonable fees under Section 6(b)(4) or Section 15A(b)(5) of the Act.\95\ 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 \96\ 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.\97\ 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 of regulatory reporting processes.\98\ A third commenter notes that it is unable to understand the justification for the 75% allocation to broker-dealers,\99\ and the fourth commenter believes that the Participants are disproportionately imposing fees on Industry Members, [[Page 35011]] which could put Industry Members at a competitive disadvantage.\100\ --------------------------------------------------------------------------- \94\ See SIFMA Letter; Cerny & O'Malley Letter, FIA Letter; MFA Letter, supra note 60. \95\ See SIFMA Letter, supra note 60, at 3. \96\ See id. at 3 n.4. \97\ See id. at 3. \98\ See Cerny & O'Malley Letter, supra note 60, at 2. \99\ See FIA Letter, supra note 60, at 3. \100\ See MFA Letter, supra note 60, 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.\101\ 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.\102\ --------------------------------------------------------------------------- \101\ See Response from Participants, supra note 60, at 5. \102\ 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.\103\ 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.\104\ The Participants also note that the cost allocation takes into account that there are approximately 25 times more Industry Members that would report to the CAT than Execution Venues.\105\ --------------------------------------------------------------------------- \103\ See id. at 15. \104\ 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. \105\ See id. at 15. --------------------------------------------------------------------------- Tiering Methodology Two commenters believe that the proposed tiering methodology is inequitable and unreasonable.\106\ 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.\107\ One of the commenters notes that, although the Participants proposed nine tiers for Industry Members, they have only proposed two tiers for Execution Venues,\108\ ``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.'' \109\ Both commenters believe the result will ``maximize costs for broker-dealers and minimize costs for Plan Participants.'' \110\ 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.\111\ --------------------------------------------------------------------------- \106\ See SIFMA Letter; FIA Letter, supra note 60. \107\ See FIA Letter, supra note 60, at 3; SIFMA Letter, supra note 60, 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''). \108\ See SIFMA Letter, supra note 60, at 4. \109\ See id. \110\ See FIA Letter, supra note 60, at 3; see also SIFMA Letter, supra note 60, at 4. \111\ See FIA Letter, supra note 60, 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.\112\ 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.\113\ The Participants believe such a result would be inequitable; therefore, they decided to base fees for Execution Venues and broker-dealers on different criteria.\114\ --------------------------------------------------------------------------- \112\ See Response from Participants, supra note 60, at 6. \113\ See id. at 6. \114\ 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.\115\ 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.\116\ 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).\117\ --------------------------------------------------------------------------- \115\ 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. \116\ See id. at 14. \117\ 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,'' \118\ and provides predictability of payment obligations.\119\ 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.\120\ --------------------------------------------------------------------------- \118\ See Response from Participants, supra note 60, at 14. \119\ See id. \120\ See id. --------------------------------------------------------------------------- Options Market-Maker Fees One commenter believes that the proposed fees will be unsustainable for small options market-makers.\121\ The commenter explains that because the 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 . . . .'' \122\ The commenter notes [[Page 35012]] 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.\123\ 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.\124\ The commenter argues that this result is not equitable or fair to smaller market participants.\125\ --------------------------------------------------------------------------- \121\ See Cerny & O'Malley Letter, supra note 60, 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 40 supra. \122\ See Cerny & O'Malley Letter, supra note 60, at 1. \123\ See id. at 3. \124\ See id. at 4. \125\ 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.\126\ 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.\127\ 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.\128\ --------------------------------------------------------------------------- \126\ See id. at 2. \127\ See id. at 3. \128\ 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.\129\ 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.\130\ --------------------------------------------------------------------------- \129\ See Response from Participants, supra note 60, at 6, 17. \130\ See id. at 17 n.96; see also note 40, supra. --------------------------------------------------------------------------- ATS Fees One commenter objects to the proposed fees for ATSs, which are the same fees as Participants under the Industry Member Fee Filings, 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.\131\ --------------------------------------------------------------------------- \131\ See SIFMA Letter, supra note 60, 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 Industry Member Fee Filings' treatment of smaller Equity Execution Venues (such as low volume ATSs), opining that such treatment is unfair and anti-competitive.\132\ 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.'' \133\ 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.\134\ --------------------------------------------------------------------------- \132\ See OTC Markets Letter, supra note 60, at 1-2. \133\ See id. at 9. \134\ 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.'' \135\ 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.\136\ --------------------------------------------------------------------------- \135\ See Response from Participants, supra note 60, at 16. \136\ 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.'' \137\ 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.'' \138\ --------------------------------------------------------------------------- \137\ See id. at 16. \138\ See id. --------------------------------------------------------------------------- OTC Equity Securities Execution Venues One commenter objects to the Industry Member Fee Filings' treatment of Execution Venues for OTC Equity securities, opining that it is unfair and anti-competitive.\139\ 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.\140\ 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.\141\ The commenter states that the number of trades in OTC Equity Securities is relatively small,\142\ 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 . . . .'' \143\ 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.\144\ 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 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.\145\ The commenter believes that this unfairly burdens the market for OTC Equity Securities.\146\ 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.\147\ Specifically, the commenter believes that there should be [[Page 35013]] 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.\148\ --------------------------------------------------------------------------- \139\ See OTC Markets Letter, supra note 60, at 1-2. \140\ See id. at 1, 3, 5. \141\ 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. \142\ See id. at 4. \143\ See id. at 7. \144\ See id. \145\ See id. at 3. \146\ See id. \147\ See id. at 8. \148\ 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.\149\ 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'' \150\ 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.'' \151\ 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.\152\ --------------------------------------------------------------------------- \149\ See Response from Participants, supra note 60, at 16. \150\ See id. \151\ See id. \152\ See id. --------------------------------------------------------------------------- IV. Discussion Pursuant to Section 11A of the Act \153\ and Rule 608(b)(3)(iii) of Regulation NMS thereunder,\154\ at any time within 60 days of the filing of any such amendment, the Commission may summarily abrogate the amendment and require that the amendment be re-filed in accordance with paragraph (a)(1) of Rule 608 \155\ and reviewed in accordance with paragraph (b)(2) of Rule 608,\156\ if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system or otherwise in furtherance of the purposes of the Act. Concerns have been raised regarding Amendment No. 2 and the Commission believes that the justifications provided by the Participants are not sufficient for the Commission to determine whether Amendment No. 2 is consistent with the Act. Accordingly, the Commission believes that the procedures provided by Rule 608(b)(2) \157\ will provide a more appropriate mechanism for determining whether Amendment No. 2 is consistent with the Act. --------------------------------------------------------------------------- \153\ 15 U.S.C. 78k-1. \154\ 17 CFR 242.608. \155\ 17 CFR 242.608(a)(1). \156\ 17 CFR 242.608(b)(2). \157\ 17 CFR 242.608(b)(2). --------------------------------------------------------------------------- The Commission believes that Amendment No. 2 raises 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. Moreover, the Commission does not believe that the Participants have provided an adequate justification to support a determination that 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 or that the fees will not result in an undue or inappropriate burden on competition. The Commission also does not believe that the Participants have adequately explained that the CAT Fees are consistent with the funding principles set forth in the CAT NMS Plan, which require that the allocation of ``costs among Participants and Industry Members . . . is consistent with the [ ] 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'' \158\ and required that such fees ``avoid any disincentives such as placing an inappropriate burden on competition and a reduction in market quality.'' --------------------------------------------------------------------------- \158\ Section 11.2(b) of the CAT NMS Plan. --------------------------------------------------------------------------- Further, the Commission believes that Amendment No. 2 raises 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 decision to group Execution Venues for OTC Equity Securities and NMS Stocks in one tier structure raises questions about the effect on competition, recognizing that the application of share volume may lead to different outcomes as applied to OTC Equity Securities and NMS Stocks. Similarly, the decision to place Execution Venues representing less than 1% of NMS market share in the same tier structure as other Equity Execution Venues raises questions about burdens on competition. The Commission believes that the Participants have not provided adequate justification to support a conclusion that their tier structure will not result in an undue or inappropriate burden on competition. V. Conclusion For the reasons discussed above, the Commission believes that the procedures provided by Rule 608(b)(2) of Regulation NMS \159\ will provide a more appropriate mechanism for determining whether Amendment No. 2 is consistent with the Act. Therefore, the Commission finds that it is necessary or appropriate in the public interest, for the protection of investors, or the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system or otherwise in furtherance of the purposes of the Act, to abrogate Amendment No. 2. --------------------------------------------------------------------------- \159\ 17 CFR 242.608(b)(2). --------------------------------------------------------------------------- It is therefore ordered, pursuant to Section 11A of the Act,\160\ and Rule 608 thereunder,\161\ that Amendment No. 2 to the CAT NMS Plan be, and hereby is, summarily abrogated. If the Participants choose to re-file Amendment No. 2, they must do so pursuant to Section 11A of the Act and Amendment No. 2 must be re-filed in accordance with paragraph (a)(1) of Rule 608 of Regulation NMS \162\ for review in accordance with paragraph (b)(2) of Rule 608 of Regulation NMS.\163\ --------------------------------------------------------------------------- \160\ 15 U.S.C. 78k-1. \161\ 17 CFR 242.608. \162\ 17 CFR 242.608(a)(1). \163\ 17 CFR 242.608(b)(2). By the Commission. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-15768 Filed 7-26-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices 35005
Commission takes such action, the For the Commission, by the Division of amend the Plan (‘‘Amendment No. 2’’),5
Commission shall institute proceedings Trading and Markets, pursuant to delegated pursuant to Section 11A of the Act,6 and
to determine whether the proposed rule authority.20 Rule 608 thereunder.7 The Amendment,
should be approved or disapproved. Eduardo A. Aleman, which was effective upon filing
Assistant Secretary. pursuant to Rule 608(b)(3)(i) of
IV. Solicitation of Comments
[FR Doc. 2017–15772 Filed 7–26–17; 8:45 am] Regulation NMS,8 sets forth the
Interested persons are invited to BILLING CODE 8011–01–P Consolidated Audit Trail (‘‘CAT’’) fees
submit written data, views, and to be paid by the Participants.
arguments concerning the foregoing,
II. Description of the Amendment
including whether the proposed rule SECURITIES AND EXCHANGE
change is consistent with the Act. COMMISSION Prior to filing Amendment No. 2, the
Comments may be submitted by any of Participants filed the CAT NMS Plan
[Release No. 34-81189; File No. 4–698] with the Commission,9 pursuant to
the following methods:
Section 11A of the Act 10 and Rule 608
Electronic Comments Joint Industry Plan; Order of Summary
of Regulation NMS thereunder,11 to
Abrogation of Amendment No. 2 to the
• Use the Commission’s Internet National Market System Plan
create, implement and maintain the
comment form (http://www.sec.gov/ CAT. The Plan was published for
Governing the Consolidated Audit Trail
rules/sro.shtml); or comment in the Federal Register on
by Bats BYX Exchange, Inc., Bats BZX
• Send an email to rule-comments@ May 17, 2016,12 and approved by the
Exchange, Inc., Bats EDGA Exchange,
sec.gov. Please include File Number SR– Commission, as modified, on November
Inc., Bats EDGX Exchange, Inc., BOX
PEARL–2017–32 on the subject line. 15, 2016.13 Under the CAT NMS Plan,
Options Exchange LLC, C2 Options
the Operating Committee of a newly
Paper Comments Exchange, Incorporated, Chicago
formed company—CAT NMS, LLC (the
Board Options Exchange,
• Send paper comments in triplicate Incorporated, Chicago Stock
‘‘Company’’), of which each Participant
to Secretary, Securities and Exchange is a member—has the discretion to
Exchange, Inc., Financial Industry
Commission, 100 F Street NE., establish funding for the Company to
Regulatory Authority, Inc., Investors’
Washington, DC 20549–1090. operate the CAT, including establishing
Exchange LLC, Miami International
fees that the Participants and Industry
All submissions should refer to File Securities Exchange, LLC, MIAX
Members will pay (‘‘CAT Fees’’).14
Number SR–PEARL–2017–32. This file PEARL, LLC, NASDAQ BX, Inc., The Plan specified that, in
number should be included on the Nasdaq GEMX, LLC, Nasdaq ISE, LLC, establishing the funding of the
subject line if email is used. To help the Nasdaq MRX, LLC, NASDAQ PHLX Company, the Operating Committee
Commission process and review your LLC, The NASDAQ Stock Market LLC, shall establish ‘‘a tiered fee structure in
comments more efficiently, please use New York Stock Exchange LLC, NYSE which the fees charged to: (i) CAT
only one method. The Commission will Arca, Inc., NYSE MKT LLC and NYSE Reporters that are Execution Venues,
post all comments on the Commission’s National, Inc. including ATSs, are based upon the
Internet Web site (http://www.sec.gov/ level of market share; (ii) Industry
rules/sro.shtml). Copies of the July 21, 2017.
Members’ non-ATS activities are based
submission, all subsequent I. Introduction upon message traffic; and (iii) the CAT
amendments, all written statements Reporters with the most CAT-related
Notice is hereby given that the
with respect to the proposed rule activity (measured by market share and/
Securities and Exchange Commission
change that are filed with the or message traffic, as applicable) are
(‘‘Commission’’), pursuant to Section
Commission, and all written generally comparable (where, for these
11A of the Securities Exchange Act of
communications relating to the comparability purposes, the tiered fee
1934 (‘‘Act’’),1 and Rule 608
proposed rule change between the structure takes into consideration
thereunder,2 is summarily abrogating
Commission and any person, other than
Amendment No. 2 to the National
those that may be withheld from the
Market System Plan Governing the 5 See Letter from Michael Simon, Chair, CAT
public in accordance with the NMS Plan Operating Committee, to Brent J. Fields,
Consolidated Audit Trail (‘‘CAT NMS
provisions of 5 U.S.C. 552, will be Secretary, Commission, dated May 22, 2017
Plan’’ or ‘‘Plan’’). (‘‘Letter’’). See also Securities Exchange Act Release
available for Web site viewing and
On May 23, 2017 3 participants of the No. 80930 (June 14, 2017), 82 FR 28180 (June 20,
printing in the Commission’s Public
CAT NMS Plan (‘‘Participants’’) 4 filed 2017) (‘‘Notice’’), available at https://www.sec.gov/
Reference Room, 100 F Street NE., rules/sro/nms/2017/34-80930.pdf.
with the Commission a proposal to
Washington, DC 20549, on official 6 15 U.S.C. 78k–1.
business days between the hours of 1 15
U.S.C. 78k–1.
7 17 CFR 242.608.
10:00 a.m. and 3:00 p.m. Copies of the 2 17
CFR 242.608.
8 17 CFR 242.608(b)(3)(i).
9 See Letter from the Participants to Brent J.
filing also will be available for 3 The Participants initially submitted the
Fields, Secretary, Commission, dated September 30,
inspection and copying at the principal amendment on May 9, 2017, but subsequently
2014; and Letter from Participants to Brent J. Fields,
office of the Exchange. All comments withdrew the amendment and refiled the current
Secretary, Commission, dated February 27, 2015.
submission on May 23, 2017.
received will be posted without change; 4 The Participants are: Bats BYX Exchange, Inc.,
On December 23, 2015, the Participants submitted
the Commission does not edit personal an amendment to the CAT NMS Plan. See Letter
Bats BZX Exchange, Inc., Bats EDGA Exchange, from Participants to Brent J. Fields, Secretary,
identifying information from Inc., Bats EDGX Exchange, Inc., BOX Options Commission, dated December 23, 2015.
submissions. You should submit only Exchange LLC, C2 Options Exchange, Incorporated,
mstockstill on DSK30JT082PROD with NOTICES
10 15 U.S.C. 78k–1.
information that you wish to make Chicago Board Options Exchange, Incorporated, 11 17 CFR 242.608.
Chicago Stock Exchange, Inc., Financial Industry
available publicly. All submissions Regulatory Authority, Inc., Investors’ Exchange
12 Securities Exchange Act Release No. 77724
should refer to File Number SR– LLC, Miami International Securities Exchange, LLC, (April 27, 2016), 81 FR 30614 (May 17, 2016) (‘‘CAT
PEARL–2017–32, and should be MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq NMS Plan Notice’’).
13 Securities Exchange Act Release No. 79318
submitted on or before August 17, 2017. GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC,
NASDAQ PHLX LLC, The NASDAQ Stock Market (November 15, 2016), 81 FR 84696 (November 23,
LLC, New York Stock Exchange LLC, NYSE Arca, 2016) (‘‘Approval Order’’).
20 17 CFR 200.30–3(a)(12). Inc., NYSE MKT LLC and NYSE National, Inc. 14 Section 11.1(b) of the CAT NMS Plan.
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![35006 Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices
affiliations between or among CAT The Plan specifies that, in A. Execution Venue Tiers 23
Reporters, whether Execution Venues establishing the funding of the
1. NMS Stocks and OTC Equity
and/or Industry Members).’’ 15 Under Company, the Operating Committee Securities
the Plan, such fees are to be shall establish ‘‘a tiered fee structure in
implemented in accordance with which the fees charged to: (i) CAT Amendment No. 2 establishes fixed
various funding principles, including an Reporters that are Execution Venues, fees to be paid by Execution Venues 24
‘‘allocation of the Company’s related including ATSs, are based upon the depending on the market share of that
costs among Participants and Industry level of market share; (ii) Industry Execution Venue in NMS Stocks and
Members that is consistent with the [ ] Members’ non-ATS activities are based OTC Equity Securities. Market share for
Act taking into account . . . distinctions Execution Venues will be calculated by
upon message traffic; and (iii) the CAT
in the securities trading operations of share volume, except the market share
Reporters with the most CAT-related
Participants and Industry Members and for a national securities association that
activity (measured by market share and/
their relative impact upon the Company has trades reported by its members to its
or message traffic, as applicable) are trade reporting facility or facilities for
resources and operations’’ and the generally comparable (where, for these
‘‘avoid[ance of] any disincentives such reporting transactions effected
comparability purposes, the tiered fee otherwise than on an exchange in NMS
as placing an inappropriate burden on structure takes into consideration
competition and reduction in market Stocks or OTC Equity Securities will be
affiliations between or among CAT calculated based on share volume of
quality.’’ 16 Reporters, whether Execution Venues trades reported, excluding the share
The Participants submitted this and/or Industry Members.’’ 20 Under the volume reported to such national
Amendment No. 2 to the Plan to Plan, such fees are to be implemented securities association by an Execution
establish the CAT Fees to be charged to in accordance with various funding Venue.25
themselves, as Execution Venues.17 In principles, including an ‘‘allocation of Under Amendment No. 2, each Equity
addition, the Participants submitted the Company’s related costs among Execution Venue will be ranked by
proposed rule changes to adopt fees to Participants and Industry Members that market share and assigned to one of two
be charged to Industry Members, is consistent with the [ ] Act’’ and the tiers that have been predefined by
including Industry Members that are ‘‘avoid[ance of] any disincentives such percentages (the ‘‘Equity Execution
Execution Venue ATSs (‘‘Industry as placing an inappropriate burden on Venue Percentages’’).26 The Participants
Member Fee Filings’’), which are competition and reduction in market noted that the percentage of costs
described below.18 The text of the quality.’’ 21 recovered by each Equity Execution
Industry Member Fee Filings is Venue tier will be determined by
substantially similar to Amendment No. To establish the CAT Fees permitted
predefined percentage allocations (the
2. On June 30, 2017, the Commission by the Plan, the Participants submitted ‘‘Equity Execution Venue Recovery
temporarily suspended the Industry Amendment No. 2. As noted above, Allocation’’).27
Member Fee Filings and instituted Amendment No. 2 adopted fees The following table sets forth the
proceedings to determine whether those applicable to the Participants, as specific Equity Execution Venue
filings should be approved or Execution Venues, which are described Percentages and Equity Execution
disapproved.19 below.22 Recovery Allocations: 28
Percentage Percentage of
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
15 Section 11.2(c) of the CAT NMS Plan. See 2017), 82 FR 23363 (May 22, 2017) (SR–NYSE– 20 Section 11.2(c) of the CAT NMS Plan. See
Article XI of the CAT NMS Plan for additional 2017–22); 80698 (May 16, 2017), 82 FR 23457 (May Article XI of the CAT NMS Plan for additional
detail; see also, e.g., Notice, supra note 5, at 28181– 22, 2017) (SR–NYSEArca–2017–52); 80694 (May 16, detail; see also, e.g., Notice, supra note 5, at 28181–
28183 for additional description of the CAT NMS 2017), 82 FR 23416 (May 22, 2017) (SR–NYSEMKT– 28183 for additional description of the CAT NMS
Plan requirements. 2017–26); 80710 (May 17, 2017), 82 FR 23639 (May Plan requirements.
16 See Section 11.2(b) and (e) of the CAT NMS 21 See Section 11.2(c) and (e) of the CAT NMS
23, 2017) (SR–FINRA–2017–011); 80721 (May 18,
Plan. 2017), 82 FR 23864 (May 24, 2017) (SR–BOX–2017– Plan.
17 See Letter, supra note 5. See also Notice, supra 22 For additional details regarding these fees, see,
16); 80713 (May 18, 2017), 82 FR 23956 (May 24,
note 5. Section 1.1 of the CAT NMS Plan defines 2017) (SR–GEMX–2017–17); 80715 (May 18, 2017), e.g., Notice, supra note 5.
‘‘Execution Venue’’ as ‘‘a Participant or an [ATS] (as 82 FR 23895 (May 24, 2017) (SR–ISE–2017–45); 23 Amendment No. 2 establishes different tiers for
defined in Rule 300 of Regulation ATS) that 80726 (May 18, 2017), 82 FR 23915 (May 24, 2017) Equity and Options Execution Venues.
operates pursuant to Rule 301 of Regulation ATS (SR–MRX–2017–04); 80725 (May 18, 2017), 82 FR 24 See supra note 17. For purposes of determining
(excluding any such ATS that does not execute
23935 (May 24, 2017) (SR–PHLX–2017–37); 80786 the CAT Fees for ATSs, the Participants categorized
orders).’’
18 For additional details regarding these fees, see,
(May 26, 2017), 82 FR 25474 (June 1, 2017) (SR– ATSs (excluding ATSs that do not execute orders)
C2–2017–017); 80785 (May 26, 2017), 82 FR 25404 as Execution Venues. The Commission notes that
e.g., Securities Exchange Act Release Nos. 80675
mstockstill on DSK30JT082PROD with NOTICES
(June 1, 2017) (SR–CBOE–2017–040); 80784 (May the CAT Fees for Execution Venue ATSs were
(May 15, 2017), 82 FR 23100 (May 19, 2017) (SR– proposed in the Industry Member Fee Filings and
26, 2017), 82 FR 25448 (June 1, 2017) (SR–
MIAX–2017–18); 80676 (May 15, 2017), 82 FR that Amendment No. 2 addresses fees applicable to
23083 (May 19, 2017) (SR–PEARL–2017–20); 80697 BatsEDGA–2017–13); 80809 (May 30, 2017), 82 FR
25837 (June 5, 2017) (SR–BatsBYX–2017–11); 80822 the Participants, as Execution Venues.
(May 16, 2017), 82 FR 23398 (May 22, 2017) (SR– 25 Section 11.3(a)(i) of the CAT NMS Plan; see
BX–2017–023); 80691 (May 16, 2017), 82 FR 23344 (May 31, 2017), 82 FR 26148 (June 6, 2017) (SR-
(May 22, 2017) (SR–CHX–2017–08); 80692 (May 16, BatsBZX–2017–38); and 80821 (May 31, 2017), 82 also, e.g., Notice, supra note 5, at 28186.
FR 26177 (June 6, 2017) (SR–BatsEDGX–2017–22). 26 See, e.g., Notice, supra note 5, at 28186.
2017), 82 FR 23325 (May 22, 2017) (SR–IEX–2017–
19 See Securities Exchange Act Release No. 81067 27 See, e.g., id.
16); 80696 (May 16, 2017), 82 FR 23439 (May 22,
2017) (SR–NASDAQ–2017–046); 80693 (May 16, (June 30, 2017), 82 FR 31656 (July 7, 2017). 28 See, e.g., id.
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![Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices 35009
will calculate subsequent tier Plan, the Commission received a that the CAT is not justified in terms of
assignments using the three months of number of comment letters on the costs and benefits and warns that any
data prior to the relevant tri-monthly Industry Member Fee Filings, and a costs assessed to broker-dealers will
date.51 The Participants noted that any response to such comments from the ultimately be passed on to investors.63
movement of CAT Reporters between Participants. Because the text of the Similarly, another commenter believes
tiers will not change the criteria for each Industry Member Fee Filings is that fees imposed on broker-dealers are
tier or the fee amount corresponding to substantially similar to this Amendment likely to be passed through to investors,
each tier.52 According to the No. 2, the Commission believes the effectively limiting investor choice in
Participants, a CAT Reporter’s assigned comment letters are relevant to this execution venues.64
tier will depend not only on its own Order and has summarized the In response to the comment
message traffic or market share, but also comments on the Industry Member Fee questioning the utility of the CAT, the
on the message traffic or market share Filings below.60 Participants explain that they are
across all CAT Reporters.53 Necessity of the CAT obligated to build the CAT by Rule
613.65 Further, the Participants state
F. Changes to Fee Levels and Tiers One commenter asks whether the that the CAT NMS Plan requires them
The Participants noted that Section CAT is a ‘‘worthwhile endeavor,’’ 61 to eliminate existing systems and rules
11.3(d) of the CAT NMS Plan states that arguing that the CAT is largely made duplicative by the CAT and that
‘‘[t]he Operating Committee shall review duplicative of existing electronic audit they have already filed proposals to
such fee schedule on at least an annual trails, and suggesting that the goals of accomplish this for certain such systems
basis and shall make any changes to the CAT can be accomplished at a and rules.66 The Participants add that
such fee schedule that it deems fraction of the cost set forth in the the CAT is intended to replace the
appropriate.’’ 54 The Participants stated filings.62 The commenter also believes current audit trails (which vary in data
that, as part of such reviews, the and scope, among other ways) with a
60 Since the Industry Member Fee Filings were
Operating Committee will review the single, comprehensive audit trail.67
designed to adopt fees to be charged to Industry
distribution of Industry Members and Members to fund CAT, the Commission considered
Execution Venues across tiers and make all comments received regardless of the comment
Funding Authority
any updates to the percentage of CAT file to which they were submitted. See Letter from One commenter challenges the
Theodore R. Lazo, Managing Director and Associate
Reporters allocated to each tier as may General Counsel, Securities Industry and Financial imposition of a CAT Fee on Industry
be necessary.55 In addition, the Markets Association, to Brent J. Fields, Secretary, Members, arguing that the Participants
Participants asserted that such reviews Commission (dated June 6, 2017) (‘‘SIFMA Letter’’), have not provided justification for
would consider the estimated ongoing available at: https://www.sec.gov/comments/sr-
batsbzx-2017-38/batsbzx201738-1788188-
imposing such a fee and that the
CAT costs and the level of the operating 153228.pdf; Letter from Patricia L. Cerny and Industry Members should not be
reserve, in order to adjust CAT Fees as Steven O’Malley, Compliance Consultants, to Brent obligated to pay any costs or expenses
appropriate.56 The Participants further J. Fields, Secretary, Commission (dated June 12, other than the direct costs to build and
2017) (‘‘Cerny & O’Malley Letter’’), available at:
stated that any changes to the number https://www.sec.gov/comments/sr-cboe-2017-040/ operate the CAT.68 Two commenters
of tiers in the funding model or the fees cboe2017040-1799253-153675.pdf; Letter from note that broker-dealers already pay the
assigned to each tier will be filed with Daniel Zinn, General Counsel, OTC Markets Group Participants a significant amount in
the Commission pursuant to Rule 608 of Inc., to Eduardo A. Aleman, Assistant Secretary, regulatory funding, and argue that costs
Commission (dated June 13, 2017) (‘‘OTC Markets
the Act and become effective in Letter’’), available at: https://www.sec.gov/ other than the direct costs to build and
accordance with the requirements of comments/sr-finra-2017-011/finra2017011- operate the CAT (such as insurance and
Rule 608.57 1801717-153703.pdf; Letter from Joanna Mallers, consulting) should be borne by the
Pursuant to Rule 608(b)(3)(i) under Secretary, FIA Principal Traders Group, to Brent J.
Fields, Secretary, Commission (dated June 22, 2017) Participants as the costs they incur to do
Regulation NMS,58 the Participants (‘‘FIA Letter’’), available at: https://www.sec.gov/ business as self-regulatory
designated Amendment No. 2 as comments/sr-cboe-2017–040/cboe2017040- organizations, as well as any costs
establishing or changing a fee or other 1819670–154195.pdf; Letter from Stuart J. Kaswell, incurred before the approval of the CAT
Executive Vice President and Managing Director,
charge collected on their behalf in General Counsel, Managed Funds Association, to NMS Plan.69
connection with access to, or use of, the Brent J. Fields, Secretary, Commission (dated June In their response, the Participants
facilities contemplated by the Plan. As 23, 2017) (‘‘MFA Letter’’), available at: https:// state that Rule 613 of Regulation NMS
a result, Amendment No. 2 was effective www.sec.gov/comments/sr-finra-2017-011/
finra2017011-1822454-154283.pdf; and Letter from
(‘‘Rule 613’’) 70 contemplates broker-
upon filing with the Commission. On Suzanne H. Shatto, Investor, to Commission (dated dealers contributing to the funding of
June 14, 2017, the Commission issued June 27, 2017) (‘‘Shatto Letter’’), available at: CAT.71 Because the CAT improves
notice of Amendment No. 2.59 https://www.sec.gov/comments/sr-batsedgx-2017-
22/batsedgx201722-154443.pdf. The Commission
63 See FIA Letter, supra note 60, at 2.
III. Summary of Comments and also received a comment letter which is not
64 See
pertinent to the Industry Member Fee Filings and MFA Letter, supra note 60, at 2.
Participants’ Response Amendment No. 2. See Letter from Christina 65 See Response from Participants, supra note 60,
While no comments were received on Crouch, Smart Ltd., to Brent J. Fields, Secretary, at 17.
Commission (dated June 5, 2017) (‘‘Smart Letter’’), 66 See id. at 18. As an example of such a filing,
Amendment No. 2 to the CAT NMS available at: https://www.sec.gov/comments/sr- the Participants cite to Securities Exchange Act
batsbzx-2017-38/batsbzx201738-1785545- Release No. 80783 (May 26, 2017), 82 FR 25423
51 See, e.g., Notice, supra note 5, at 28194. 153152.htm. The Commission also has received a (June 1, 2017) (SR–FINRA–2017–013), wherein
52 See, e.g., id. letter from the Participants responding to the FINRA proposes to eliminate the Order Audit Trail
53 See, e.g., id. comments received. See Letter from CAT NMS Plan System. See Response from Participants, supra note
Participants to Brent J. Fields, Secretary,
mstockstill on DSK30JT082PROD with NOTICES
54 See, e.g., id. 60, at 18 n.103.
55 See, e.g., id.
Commission (dated June 29, 2017) (‘‘Response from 67 See Response from Participants, supra note 60,
Participants’’), available at https://www.sec.gov/
56 See, e.g., id. The Participants further noted that
comments/sr-batsbyx-2017-11/batsbyx201711- at 18.
any surplus of the Company’s revenues over its 1832632-154584.pdf.
68 See SIFMA Letter, supra note 60, at 2–4.
expenses will be included within the operational 61 See FIA Letter, supra note 60, at 2. 69 See FIA Letter, supra note 60, at 2–3; see also
reserve to offset future fees. See, e.g., id. 62 See id. See also Cerny & O’Malley Letter, supra SIFMA Letter, supra note 60, at 3–4.
57 See, e.g., id. 70 17 CFR 242.613.
note 60, at 4 (suggesting that the CAT will not
58 17 CFR 242.608(b)(3)(i). 71 See Response from Participants, supra note 60,
capture any new violative activity not currently
59 See supra note 5. disclosed under current surveillance practices). at 3.
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![Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices 35011
which could put Industry Members at a tiers would have resulted in Execution Venues with the result of fees
competitive disadvantage.100 significantly higher fees for Tier 1 for Tier 1 Execution Venues being much
In response to comments regarding [E]xecution [V]enues and diminish higher than fees for Tier 1 Industry
the allocation of CAT costs, the comparability between [E]xecution Members.116 In turn, the Participants
Participants first state that the 88% [V]enues and Industry Members.’’ 109 believe that such a result will violate
figure cited in the first commenter’s Both commenters believe the result will Section 11.2(c) of the CAT NMS Plan,
letter is the cost broker-dealers will ‘‘maximize costs for broker-dealers and which states that, in establishing the
incur directly to comply with the minimize costs for Plan funding of the Company, the Operating
reporting requirements of the CAT, not Participants.’’ 110 One of the Committee shall seek to establish a
the CAT Fees.101 The Participants also commenters also questions why it tiered fee structure in which the fees
note that this is an aggregate number makes sense to charge a fixed fee for all charged to the CAT Reporters with the
and reflects the fact that there are 75 market participants within a single tier, most CAT-related activity (measured by
times more Industry Members that and whether the fixed-fee tiers set forth market share and/or message traffic) are
would report to the CAT than therein could create incentives for generally comparable (where, for these
Participants.102 market participants to limit their comparability purposes, the tiered fee
In addition, the Participants explain quoting and trading activities as their structure takes into consideration
that the Operating Committee believed trading volumes approach higher affiliations between or among CAT
that the 75%/25% division of total CAT tiers.111 Reporters, whether Execution Venues
costs between Industry Members and In response to the comments that the and/or Industry Members).117
Execution Venues maintained the tiering methodology is inequitable and
In response to the comment asking
greatest level of comparability, unreasonable because Participants will
why it makes sense to charge a fixed fee
considering affiliations among or be assessed fees based on market share,
between CAT Reporters.103 The for all market participants within a
rather than message traffic, the
Participants state that although the Tier single tier and questioning the results of
Participants explain that charging
1 and 2 fees for Industry Members fixed-fee tiering, the Participants
broker-dealers based on message traffic
would be higher than those for explain that the proposed approach
is the most equitable means to establish
Execution Venues, the fees paid by ‘‘helps ensure that fees are equitably
their fees because message traffic is a
Execution Venue complexes would be allocated among similarly situated CAT
significant cost driver of CAT.
higher than those paid by Industry Reporters, thereby lessening the impact
Accordingly, the Participants believe
Member complexes.104 The Participants that it is appropriate to use message of CAT fees on smaller firms,’’ 118 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.112 The Participants state that obligations.119 The Participants also
approximately 25 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.105 result in large and small Execution any changes in message traffic levels
Venues paying comparable fees as both through the use of predefined fixed
Tiering Methodology percentages instead of fixed volume
types of Execution Venues produce
Two commenters believe that the similar amounts of message traffic.113 thresholds, and would not likely cause
proposed tiering methodology is The Participants believe such a result CAT Reporters to change their behavior
inequitable and unreasonable.106 Both would be inequitable; therefore, they (and impact liquidity) to avoid being
commenters raise concerns that the tiers decided to base fees for Execution placed in a higher tier.120
will be applied inequitably because Venues and broker-dealers on different Options Market-Maker Fees
Industry Members will be assessed fees criteria.114
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
while Participants will be assessed fees two tiers for themselves, the small options market-makers.121 The
on their market share.107 One of the Participants state that the CAT NMS commenter explains that because the
commenters notes that, although the Plan permits them to establish only two nature of their business requires the
Participants proposed nine tiers for tiers and that two tiers were sufficient generation of quotes, the proposed
Industry Members, they have only to distinguish between the Execution assessment of fees based on message
proposed two tiers for Execution Venues.115 The Participants state that traffic will place small options market-
Venues,108 ‘‘claiming that additional adding more tiers will significantly makers in the top Industry Member fee
increase fees for Tier 1 and Tier 2 tiers, ‘‘[a]lthough this category of broker-
100 See MFA Letter, supra note 60, at 2. dealer is relatively small in terms of net
101 See Response from Participants, supra note 60, 109 See
id. worth . . . .’’ 122 The commenter notes
at 5. 110 See
102 See
FIA Letter, supra note 60, at 3; see also
id. SIFMA Letter, supra note 60, at 4.
103 See 116 See id. at 14.
id. at 15. 111 See FIA Letter, supra note 60, at 3.
104 See id. The Participants note that ‘‘the 117 See id.; Section 11.2(c) of the CAT NMS Plan.
112 See Response from Participants, supra note 60,
118 See Response from Participants, supra note 60,
proposed funding model estimates total fees for at 6.
associated Participant complexes that are in several 113 See id. at 6. at 14.
cases nearly two to three times larger than the 114 See id. The Participants also explain that,
119 See id.
single largest broker-dealer complex.’’ See id. at 6. 120 See id.
while ATSs have varying levels of message traffic,
mstockstill on DSK30JT082PROD with NOTICES
105 See id. at 15. 121 See Cerny & O’Malley Letter, supra note 60,
they operate similarly to exchanges and therefore
106 See SIFMA Letter; FIA Letter, supra note 60.
were categorized as Execution Venues. See id. at 6– at 1. The commenter notes that options market-
107 See FIA Letter, supra note 60, at 3; SIFMA
7. makers have an obligation to quote ‘‘hundreds of
Letter, supra note 60, at 4 (stating ‘‘the Plan 115 See id. at 13. The Participants also state that, thousands of options series’’ and that this fact was
Participants proposals inexplicably propose a unlike for Industry Members, the data for Execution acknowledged by the Commission, which exempted
tiering mechanism for themselves that is based on Venues ‘‘did not suggest a break point(s) for the them from submitting their quotes to the Central
not their relative impact to the CAT system, but markets with less than 1% market share that would Repository. See id. at 3; see also note 40 supra.
instead on their relative market share’’). indicate an appropriate threshold for creating a new 122 See Cerny & O’Malley Letter, supra note 60,
108 See SIFMA Letter, supra note 60, at 4. tier or tiers.’’ Id. at 1.
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that the top three tier fees for Industry Another commenter objects to the OTC Equity Securities Execution
Members are comparable to the largest Industry Member Fee Filings’ treatment Venues
equity Execution Venues, which it states of smaller Equity Execution Venues One commenter objects to the
is neither equitable nor fair.123 The (such as low volume ATSs), opining Industry Member Fee Filings’ treatment
commenter also believes that smaller that such treatment is unfair and anti- of Execution Venues for OTC Equity
broker-dealers, such as options market- competitive.132 The commenter also securities, opining that it is unfair and
makers and other electronic trading argues that smaller Execution Venues anti-competitive.139 The commenter
firms, will be in the top fee tiers, while that were assigned to the second fee tier particularly objects to the assignment of
larger ‘‘full-service’’ firms that produce would be required to pay two-thirds of OTC Link ATS to the first fee tier of
fewer electronic messages would be in the fees allocated to ‘‘the enormous Execution Venues with large Execution
the lower fee tiers.124 The commenter NYSE or Nasdaq exchanges.’’ 133 This Venues for NMS Stocks.140 The
argues that this result is not equitable or commenter suggests adding at least one commenter states that OTC Link ATS
fair to smaller market participants.125 tier for small ATSs executing in the was placed in the first CAT fee tier
Additionally, the commenter believes aggregate less than 1% of NMS stocks because fee tier assignments are
that charging Industry Members on the (based on trade volume), as well as for inappropriately based on market share
basis of message traffic will ATSs executing OTC Equity securities, calculated from share volume.141 The
disproportionately impact options and allocating approximately 1.5% of commenter states that the number of
market-makers because, unlike for the total costs assigned to all Execution trades in OTC Equity Securities is
equities, message traffic would include Venues to that tier.134 relatively small,142 as opposed to share
options strikes and series.126 Further, In response to the comment noting volume ‘‘due to the disproportionately
the commenter notes that options that charging ATSs the same CAT fees large number of shares being traded on
market-makers have continuous quoting as Execution Venues would result in a the OTC equity market as compared to
obligations imposed by the exchanges, significant burden on smaller ATSs and the NMS market . . . .’’ 143 The
and consequently, expected increases in act as a barrier to entry, the Participants
the options classes listed by the commenter explains that many OTC
reiterate that two fee tiers for Execution Equity Securities are priced at less than
exchanges will increase CAT fees for Venues were appropriate because
options market-makers.127 The one dollar—and a significant number at
adding tiers would ‘‘compromise the less than one penny—and that low-
commenter adds that the proposed fees comparability of fees between Execution
may impact the ability of small options priced shares tend to trade in larger
Venues and Industry Members with the quantities.144 Because the fee tiers are
market-makers to provide liquidity and most CAT-related activity. . . [C]reating
that such Industry Members may choose based on market share calculated from
additional tiers could have unintended share volume, the commenter points out
to leave the market-making business in consequences on the funding model
order to avoid quoting requirements.128 that OTC Link ATS has the greatest
such as creating greater discrepancies market share of all of the Execution
In their response, the Participants
between the tiers.’’ 135 The Participants Venues in both NMS Stocks and OTC
explain that since message traffic is a
also explain that they decided to treat Equity Securities at 29.90% and
major cost component for CAT, they
Execution Venues and ATSs in the same accordingly was assigned to the same
believe it is an appropriate basis for
assigning Industry Member fee tiers.129 way because of the similarities of their fee tier as exchanges that the commenter
The Participants note that options business models and estimated burden claims have approximately 20 times
market-makers will produce a large on CAT.136 greater trading revenues than OTC Link
amount of message traffic to be In response to the comment ATS.145 The commenter believes that
processed by the CAT, so the recommending the addition of a tier for this unfairly burdens the market for
Participants intend to charge them CAT small ATSs executing in the aggregate OTC Equity Securities.146 The
fees.130 less than 1% of NMS stocks, the commenter recommends placing
Participants explain that two fee tiers Execution Venues for OTC Equity
ATS Fees for Execution Venues were appropriate Securities in separate tiers from large
One commenter objects to the because adding tiers would Execution Venues for NMS Stocks and
proposed fees for ATSs, which are the ‘‘compromise the comparability of fees allocating costs to tiers based on number
same fees as Participants under the between Execution Venues and Industry of trades to align tiers with CAT usage
Industry Member Fee Filings, as Members with the most CAT-related and costs.147 Specifically, the
unreasonable, because it believes the activity.’’ 137 The Participants also state commenter believes that there should be
fees would result a significant burden that they considered adding more than
on small ATSs and a barrier to entry for two tiers of Execution Venue fees, but 139 See OTC Markets Letter, supra note 60, at 1–
new ATSs that would not similarly that doing so would result greatly 2.
140 See
id. at 1, 3, 5.
apply to the Participants.131 increase the fees imposed on Tier 1
141 See
id. at 6–8. The commenter states that
Equity Execution Venues and ‘‘diminish
‘‘[s]hare volume is an inappropriate method for
123 See id. at 3. comparability between Execution determining market share, because the costs of
124 See id. at 4. Venues and Industry Members in a operating the CAT are not correlated with the
125 See id.
manner that would be difficult to justify number of shares traded in any particular Execution
126 See id. at 2.
under the funding model.’’ 138 Venue. Instead, CAT’s costs are impacted by the
127 See id. at 3. number of orders and executions.’’ See id. at 6. The
128 See id. at 3, 4, 5. commenter recommends using the number of trades
132 See OTC Markets Letter, supra note 60, at 1– in lieu of share volume, or dollar volume instead
mstockstill on DSK30JT082PROD with NOTICES
129 See Response from Participants, supra note 60,
2. of share volume, for determining market share. See
at 6, 17.
130 See id. at 17 n.96; see also note 40, supra.
133 See
id. at 9. id. at 7–8.
134 See 142 See id. at 4.
131 See SIFMA Letter, supra note 60, at 4. SIFMA id.
135 See Response from Participants, supra note 60, 143 See id. at 7.
states that Tier 2 Execution Venues will produce
significantly more reports to CAT than Tier 2 ATSs, at 16. 144 See id.
136 See id. at 6–7. 145 See id. at 3.
but points out that Tier 2 Execution Venues and
137 See id. at 16. 146 See id.
Tier 2 ATSs will be subject to the same CAT Fees.
See id. 138 See id. 147 See id. at 8.
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![Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices 35013
separate tiers for the Execution Venues investors, or the maintenance of fair and recognizing that the application of share
for OTC Equity Securities with orderly markets, to remove impediments volume may lead to different outcomes
approximately 0.5% of the total costs to, and perfect the mechanisms of, a as applied to OTC Equity Securities and
assigned to all Execution Venues national market system or otherwise in NMS Stocks. Similarly, the decision to
allocated to that tier, or at least one furtherance of the purposes of the Act. place Execution Venues representing
additional tier for small ATSs executing Concerns have been raised regarding less than 1% of NMS market share in
in the aggregate less than 1% of NMS Amendment No. 2 and the Commission the same tier structure as other Equity
stocks (based on trade volume) and OTC believes that the justifications provided Execution Venues raises questions about
Equity securities with approximately by the Participants are not sufficient for burdens on competition. The
1.5% of the total costs assigned to all the Commission to determine whether
Commission believes that the
Execution Venues allocated to that Amendment No. 2 is consistent with the
Participants have not provided adequate
tier.148 Act. Accordingly, the Commission
In their response, the Participants believes that the procedures provided justification to support a conclusion that
state that the CAT NMS Plan provides by Rule 608(b)(2) 157 will provide a more their tier structure will not result in an
for the use of share volume to calculate appropriate mechanism for determining undue or inappropriate burden on
market share for Execution Venues that whether Amendment No. 2 is consistent competition.
execute transactions in NMS Stocks or with the Act. V. Conclusion
OTC Equity Securities.149 The The Commission believes that
Participants explain that two fee tiers Amendment No. 2 raises questions as to For the reasons discussed above, the
for Execution Venues were appropriate whether the allocation of the total CAT Commission believes that the
because adding tiers would costs recovered between and among procedures provided by Rule 608(b)(2)
‘‘compromise the comparability of fees Industry Members and Execution of Regulation NMS 159 will provide a
between Execution Venues and Industry Venues is reasonable, equitable, and not more appropriate mechanism for
Members with the most CAT-related unfairly discriminatory under Section 6 determining whether Amendment No. 2
activity’’ 150 and that they considered and Section 15A of the Act. Moreover, is consistent with the Act. Therefore,
adding more than two tiers of Execution the Commission does not believe that
the Commission finds that it is
Venue fees, but that doing so would the Participants have provided an
necessary or appropriate in the public
result greatly increase the fees imposed adequate justification to support a
on Tier 1 Equity Execution Venues and determination that the allocation of 75% interest, for the protection of investors,
‘‘diminish comparability between of total CAT costs recovered to Industry or the maintenance of fair and orderly
Execution Venues and Industry Members (other than Execution Venue markets, to remove impediments to, and
Members in a manner that would be ATSs) and 25% to Execution Venues is perfect the mechanisms of, a national
difficult to justify under the funding equitable and not unfairly market system or otherwise in
model.’’ 151 The Participants believe that discriminatory or that the fees will not furtherance of the purposes of the Act,
the CAT Fees do not impose an result in an undue or inappropriate to abrogate Amendment No. 2.
unnecessary or inappropriate burden on burden on competition. The It is therefore ordered, pursuant to
competition on OTC Equity Securities Commission also does not believe that Section 11A of the Act,160 and Rule 608
Execution Venues in light of the the Participants have adequately thereunder,161 that Amendment No. 2 to
potential negative impact of increasing explained that the CAT Fees are the CAT NMS Plan be, and hereby is,
the number of fee tiers applicable to consistent with the funding principles summarily abrogated. If the Participants
Execution Venues and the decision to set forth in the CAT NMS Plan, which
choose to re-file Amendment No. 2, they
use market share, as calculated by share require that the allocation of ‘‘costs
must do so pursuant to Section 11A of
volume, as the basis for Execution among Participants and Industry
Venue CAT Fees.152 Members . . . is consistent with the [ ] the Act and Amendment No. 2 must be
Act taking into account . . . distinctions re-filed in accordance with paragraph
IV. Discussion (a)(1) of Rule 608 of Regulation NMS 162
in the securities trading operations of
Pursuant to Section 11A of the Act 153 Participants and Industry Members and for review in accordance with paragraph
and Rule 608(b)(3)(iii) of Regulation their relative impact upon the Company (b)(2) of Rule 608 of Regulation NMS.163
NMS thereunder,154 at any time within resources and operations’’ 158 and By the Commission.
60 days of the filing of any such required that such fees ‘‘avoid any Eduardo A. Aleman,
amendment, the Commission may disincentives such as placing an
summarily abrogate the amendment and Assistant Secretary.
inappropriate burden on competition
require that the amendment be re-filed [FR Doc. 2017–15768 Filed 7–26–17; 8:45 am]
and a reduction in market quality.’’
in accordance with paragraph (a)(1) of Further, the Commission believes that BILLING CODE 8011–01–P
Rule 608 155 and reviewed in accordance Amendment No. 2 raises questions as to
with paragraph (b)(2) of Rule 608,156 if whether the determination to place
it appears to the Commission that such Execution Venues for OTC Equity
action is necessary or appropriate in the Securities in the same tier structure as
public interest, for the protection of Execution Venues for NMS Stocks will
result in an undue or inappropriate
148 See id. at 9. burden on competition under Section 6
149 See Response from Participants, supra note 60, and Section 15A. Specifically, the
mstockstill on DSK30JT082PROD with NOTICES
at 16.
150 See id.
decision to group Execution Venues for
151 See id. OTC Equity Securities and NMS Stocks
152 See id. in one tier structure raises questions 159 17 CFR 242.608(b)(2).
153 15 U.S.C. 78k–1. about the effect on competition, 160 15 U.S.C. 78k–1.
154 17 CFR 242.608. 161 17 CFR 242.608.
155 17 CFR 242.608(a)(1). 157 17 162 17 CFR 242.608(a)(1).
CFR 242.608(b)(2).
156 17 CFR 242.608(b)(2). 158 Section 11.2(b) of the CAT NMS Plan. 163 17 CFR 242.608(b)(2).
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Document Created: 2017-07-27 02:07:34
Document Modified: 2017-07-27 02:07:34
| 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 35005 |
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