[Federal Register Volume 82, Number 97 (Monday, May 22, 2017)]
[Notices]
[Pages 23344-23361]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-10295]



[[Page 23344]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80691; File No. SR-CHX-2017-08]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Schedule of Fees and Assessments To Adopt a Fee Schedule To 
Establish Fees for Industry Members Related to the National Market 
System Plan Governing the Consolidated Audit Trail

May 16, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on May 3, 2017, the Chicago Stock Exchange, Inc. (``CHX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes to amend its Schedule of Fees and Assessments (the 
``Fee Schedule'') to establish fees for Industry Members related to the 
National Market System Plan Governing the Consolidated Audit Trail (the 
``CAT NMS Plan'' or ``Plan''). The text of this proposed rule change is 
available on the Exchange's Web site at (www.chx.com) and in the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the CHX included statements 
concerning the purpose of and basis for the proposed rule changes and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The CHX has prepared summaries, set forth in sections A, 
B and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

1. Purpose
    The Exchange, 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, Financial Industry Regulatory Authority, Inc. 
(``FINRA''), Investors' Exchange LLC, Miami International Securities 
Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, 
Nasdaq ISE, LLC, Nasdaq MRX, LLC,\3\ NASDAQ PHLX LLC, The NASDAQ Stock 
Market LLC, New York Stock Exchange LLC, NYSE MKT LLC, NYSE Arca, Inc. 
and NYSE National, Inc.\4\ (collectively, the ``Plan Participants'') 
\5\ filed with the Commission, pursuant to Section 11A of the Exchange 
Act \6\ and Rule 608 of Regulation NMS thereunder,\7\ the CAT NMS 
Plan.\8\ The Plan Participants filed the Plan to comply with Rule 613 
of Regulation NMS under the Exchange Act. The Plan was published for 
comment in the Federal Register on May 17, 2016,\9\ and approved by the 
Commission, as modified, on November 15, 2016.\10\ The Plan is designed 
to create, implement and maintain a consolidated audit trail (``CAT'') 
that would capture customer and order event information for orders in 
NMS Securities and OTC Equity Securities, across all markets, from the 
time of order inception through routing, cancellation, modification, or 
execution in a single consolidated data source. The Plan accomplishes 
this by creating CAT NMS, LLC (the ``Company''), of which each Plan 
Participant is a member, to operate the CAT.\11\ Under the CAT NMS 
Plan, the Operating Committee of the Company (``Operating Committee'') 
has discretion to establish funding for the Company to operate the CAT, 
including establishing fees that the Plan Participants will pay, and 
establishing fees for Industry Members that will be implemented by the 
Plan Participants (``CAT Fees'').\12\ The Plan Participants are 
required to file with the SEC under Section 19(b) of the Exchange Act 
any such CAT Fees applicable to Industry Members that the Operating 
Committee approves.\13\ Accordingly, the Exchange submits this fee 
filing to propose the Consolidated Audit Trail Funding Fees, which will 
require Industry Members that are Exchange members to pay the CAT Fees 
determined by the Operating Committee.
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    \3\ ISE Gemini, LLC, ISE Mercury, LLC and International 
Securities Exchange, LLC have been renamed Nasdaq GEMX, LLC, Nasdaq 
MRX, LLC, and Nasdaq ISE, LLC, respectively. See Securities Exchange 
Act Rel. No. 80248 (Mar. 15, 2017), 82 FR 14547 (Mar. 21, 2017); 
Securities Exchange Act Rel. No. 80326 (Mar. 29, 2017), 82 FR 16460 
(Apr. 4, 2017); and Securities Exchange Act Rel. No. 80325 (Mar. 29, 
2017), 82 FR 16445 (Apr. 4, 2017).
    \4\ National Stock Exchange, Inc. has been renamed NYSE 
National, Inc. See Securities Exchange Act Rel. No. 79902 (Jan. 30, 
2017), 82 FR 9258 (Feb. 3, 2017).
    \5\ A ``Participant'' is a ``member'' of the Exchange for 
purposes of the Act. See CHX Article 1, Rule 1(s). For clarity, the 
term ``Plan Participant'' will be used herein when referring to 
Participants of the Plan.
    \6\ 15 U.S.C. 78k-1.
    \7\ 17 CFR 242.608.
    \8\ See Letter from the Plan Participants to Brent J. Fields, 
Secretary, Commission, dated September 30, 2014; and Letter from 
Plan Participants to Brent J. Fields, Secretary, Commission, dated 
February 27, 2015. On December 24, 2015, the Plan Participants 
submitted an amendment to the CAT NMS Plan. See Letter from Plan 
Participants to Brent J. Fields, Secretary, Commission, dated 
December 23, 2015.
    \9\ Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 
FR 30614 (May 17, 2016).
    \10\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81 
FR 84696 (Nov. 23, 2016) (``Approval Order'').
    \11\ The Plan also serves as the limited liability company 
agreement for the Company.
    \12\ Section 11.1(b) of the CAT NMS Plan.
    \13\ Id.
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(1) Executive Summary
    The following provides an executive summary of the CAT funding 
model approved by the Operating Committee, as well as Industry Members' 
rights and obligations related to the payment of CAT Fees calculated 
pursuant to the CAT funding model. A detailed description of the CAT 
funding model and the CAT Fees follows this executive summary.
(A) CAT Funding Model
     CAT Costs. The CAT funding model is designed to establish 
CAT-specific fees to collectively recover the costs of building and 
operating the CAT from all CAT Reporters, including Industry Members 
and Plan Participants. The overall CAT costs for the calculation of the 
CAT Fees in this fee filing are comprised of Plan Processor CAT costs 
and non-Plan Processor CAT costs incurred, and estimated to be 
incurred, from November 21, 2016 through November 21, 2017. (See 
Section 3(a)(2)(E) [sic] below \14\)
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    \14\ The Commission notes that references to Sections 3(a)(2) 
and 3(a)(3) in this Executive Summary should be instead to Sections 
II.A.1.(2) and II.A.1.(3), respectively.
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     Bifurcated Funding Model. The CAT NMS Plan requires a 
bifurcated funding model, where costs associated with building and 
operating the CAT would be borne by (1) Plan Participants

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and Industry Members that are Execution Venues for Eligible Securities 
through fixed tier fees based on market share, and (2) Industry Members 
(other than alternative trading systems (``ATSs'') that execute 
transactions in Eligible Securities (``Execution Venue ATSs'')) through 
fixed tier fees based on message traffic for Eligible Securities. (See 
Section 3(a)(2) [sic] below)
     Industry Member Fees. Each Industry Member (other than 
Execution Venue ATSs) will be placed into one of nine tiers of fixed 
fees, based on ``message traffic'' in Eligible Securities for a defined 
period (as discussed below). Prior to the start of CAT reporting, 
``message traffic'' will be comprised of historical equity and equity 
options orders, cancels and quotes provided by each exchange and FINRA 
over the previous three months. After an Industry Member begins 
reporting to the CAT, ``message traffic'' will be calculated based on 
the Industry Member's Reportable Events reported to the CAT. Industry 
Members with lower levels of message traffic will pay a lower fee and 
Industry Members with higher levels of message traffic will pay a 
higher fee. (See Section 3(a)(2)(B) [sic] below)
     Execution Venue Fees. Each Equity Execution Venue will be 
placed in one of two tiers of fixed fees based on market share, and 
each Options Execution Venue will be placed in one of two tiers of 
fixed fees based on market share. Equity Execution Venue market share 
will be determined by calculating each Equity Execution Venue's 
proportion of the total volume of NMS Stock and OTC Equity shares 
reported by all Equity Execution Venues during the relevant time 
period. Similarly, market share for Options Execution Venues will be 
determined by calculating each Options Execution Venue's proportion of 
the total volume of Listed Options contracts reported by all Options 
Execution Venues during the relevant time period. Equity Execution 
Venues with a larger market share will pay a larger CAT Fee than Equity 
Execution Venues with a smaller market share. Similarly, Options 
Execution Venues with a larger market share will pay a larger CAT Fee 
than Options Execution Venues with a smaller market share. (See Section 
3(a)(2)(C) [sic] below)
     Cost Allocation. For the reasons discussed below, in 
designing the model, the Operating Committee determined that 75 percent 
of total costs recovered would be allocated to Industry Members (other 
than Execution Venue ATSs) and 25 percent would be allocated to 
Execution Venues. In addition, the Operating Committee determined to 
allocate 75 percent of Execution Venue costs recovered to Equity 
Execution Venues and 25 percent to Options Execution Venues. (See 
Section 3(a)(2)(D) [sic] below)
     Comparability of Fees. The CAT funding model requires that 
the CAT Fees charged to the CAT Reporters with the most CAT-related 
activity (measured by market share and/or message traffic, as 
applicable) are generally comparable (where, for these comparability 
purposes, the tiered fee structure takes into consideration 
affiliations between or among CAT Reporters, whether Execution Venues 
and/or Industry Members). (See Section 3(a)(2)(F) [sic] below)
(B) CAT Fees for Industry Members
     Fee Schedule. The quarterly CAT Fees for each tier for 
Industry Members are set forth in the two fee schedules in the 
Consolidated Audit Trail Funding Fees, one for Equity ATSs and one for 
Industry Members other than Equity ATSs. (See Section 3(a)(3)(B) [sic] 
below)
     Quarterly Invoices. Industry Members will be billed 
quarterly for CAT Fees, with the invoices payable within 30 days. The 
quarterly invoices will identify within which tier the Industry Member 
falls. (See Section 3(a)(3)(C) [sic] below)
     Centralized Payment. Each Industry Member will receive 
from the Company one invoice for its applicable CAT Fees, not separate 
invoices from each Plan Participant of which it is a member. The 
Industry Members will pay its CAT Fees to the Company via the 
centralized system for the collection of CAT Fees established by the 
Operating Committee. (See Section 3(a)(3)(C) [sic] below)
     Billing Commencement. Industry Members will begin to 
receive invoices for CAT Fees as promptly as possible following the 
establishment of a billing mechanism. The Exchange will issue an 
Information Memorandum to its members when the billing mechanism is 
established, specifying the date when such invoicing of Industry 
Members will commence. (See Section 3(a)(2)(G) [sic] below)
(2) Description of the CAT Funding Model
    Article XI of the CAT NMS Plan requires the Operating Committee to 
approve the operating budget, including projected costs of developing 
and operating the CAT for the upcoming year. As set forth in Article XI 
of the CAT NMS Plan, the CAT NMS Plan requires a bifurcated funding 
model, where costs associated with building and operating the Central 
Repository would be borne by (1) Plan Participants and Industry Members 
that are Execution Venues through fixed tier fees based on market 
share, and (2) Industry Members (other than Execution Venue ATSs) 
through fixed tier fees based on message traffic. In its order 
approving the CAT NMS Plan, the Commission determined that the proposed 
funding model was ``reasonable'' \15\ and ``reflects a reasonable 
exercise of the [Plan] Participants' funding authority to recover the 
[Plan] Participants' costs related to the CAT.'' \16\
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    \15\ Approval Order at 84796.
    \16\ Id. at 84794.
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    More specifically, the Commission stated in approving the CAT NMS 
Plan that ``[t]he Commission believes that the proposed funding model 
is reasonably designed to allocate the costs of the CAT between the 
Plan [sic] Participants and Industry Members.'' \17\ The Commission 
further noted the following:
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    \17\ Id. at 84795.

    The Commission believes that the proposed funding model reflects 
a reasonable exercise of the [Plan] Participants' funding authority 
to recover the [Plan] Participants' costs related to the CAT. The 
CAT is a regulatory facility jointly owned by the [Plan] 
Participants and . . . the Exchange Act specifically permits the 
[Plan] Participants to charge their members fees to fund their self-
regulatory obligations. The Commission further believes that the 
proposed funding model is designed to impose fees reasonably related 
to the [Plan] Participants' self-regulatory obligations because the 
fees would be directly associated with the costs of establishing and 
maintaining the CAT, and not unrelated Exchange [sic] services.\18\
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    \18\ Id. at 84794.

Accordingly, the funding model imposes fees on both Plan Participants 
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and Industry Members.

    In addition, as discussed in Appendix C of the CAT NMS Plan, the 
Operating Committee considered the advantages and disadvantages of a 
variety of alternative funding and cost allocation models before 
selecting the proposed model.\19\ After analyzing the various 
alternatives, the Operating Committee determined that the proposed 
tiered, fixed fee funding model provides a variety of advantages in 
comparison to the alternatives. First, the fixed fee model, as opposed 
to a variable fee model, provides transparency, ease of calculation, 
ease of billing and other administrative functions, and predictability 
of a fixed fee. Such factors are crucial to estimating a reliable 
revenue stream for the Company and for permitting CAT Reporters to 
reasonably

[[Page 23346]]

predict their payment obligations for budgeting purposes.\20\ 
Additionally, a strictly variable or metered funding model based on 
message volume would be far more likely to affect market behavior and 
place an inappropriate burden on competition. Moreover, as the SEC 
noted in approving the CAT NMS Plan, ``[t]he [Plan] Participants also 
have offered a reasonable basis for establishing a funding model based 
on broad tiers, in that it be may be easier to implement.'' \21\
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    \19\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
    \20\ In choosing a tiered fee structure, the SROs concluded that 
the variety of benefits offered by a tiered fee structure, discussed 
above, outweighed the fact that Industry Members in any particular 
tier would pay different rates per message traffic order event 
(e.g., an Industry Member with the largest amount of message traffic 
in one tier would pay a smaller amount per order event than an 
Industry Member in the same tier with the least amount of message 
traffic). Such variation is the natural result of a tiered fee 
structure.
    \21\ Approval Order at 84796.
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    In addition, multiple reviews of current broker-dealer order and 
trading data submitted under existing reporting requirements showed a 
wide range in activity among broker-dealers, with a number of broker-
dealers submitting fewer than 1,000 orders per month and other broker-
dealers submitting millions and even billions of orders in the same 
period. Accordingly, the CAT NMS Plan includes a tiered approach to 
fees. The tiered approach helps ensure that fees are equitably 
allocated among similarly situated CAT Reporters and furthers the goal 
of lessening the impact on smaller firms.\22\ The self-regulatory 
organizations considered several approaches to developing a tiered 
model, including defining fee tiers based on such factors as size of 
firm, message traffic or trading dollar volume. After analyzing the 
alternatives, it was concluded that the tiering should be based on the 
relative impact of CAT Reporters on the CAT System.
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    \22\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
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    Accordingly, the CAT NMS Plan contemplates that costs will be 
allocated across the CAT Reporters on a tiered basis to allocate costs 
to those CAT Reporters that contribute more to the costs of creating, 
implementing and maintaining the CAT.\23\ The fees to be assessed at 
each tier are calculated so as to recoup a proportion of costs 
appropriate to the message traffic or market share (as applicable) from 
CAT Reporters in each tier. Therefore, Industry Members generating the 
most message traffic will be in the higher tiers, and therefore be 
charged a higher fee. Industry Members with lower levels of message 
traffic will be in lower tiers and will be assessed a smaller fee for 
the CAT.\24\ Correspondingly, Execution Venues with the highest market 
share will be in the top tier, and therefore will be charged a higher 
fee. Execution Venues with a lower market share will be in the lower 
tier and will be assessed a smaller fee for the CAT.\25\
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    \23\ Approval Order at 85005.
    \24\ Id.
    \25\ Id.
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    The Commission also noted in approving the CAT NMS Plan that 
``[t]he [Plan] Participants have offered a credible justification for 
using different criteria to charge Execution Venues (market share) and 
Industry Members (message traffic)'' \26\ in the CAT funding model. 
While there are multiple factors that contribute to the cost of 
building, maintaining and using the CAT, processing and storage of 
incoming message traffic is one of the most significant cost drivers 
for the CAT.\27\ Thus, the CAT NMS Plan provides that the fees payable 
by Industry Members (other than Execution Venue ATSs) will be based on 
the message traffic generated by such Industry Member.\28\
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    \26\ Id. at 84796.
    \27\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85005.
    \28\ Section 11.3(b) of the CAT NMS Plan.
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    The CAT NMS Plan provides that the Operating Committee will use 
different criteria to establish fees for Execution Venues and non-
Execution Venues due to the fundamental differences between the two 
types of entities. In particular, the CAT NMS Plan provides that fees 
charged to CAT Reporters that are Execution Venues will be based on the 
level of market share and that costs charged to Industry Members (other 
than Execution Venue ATSs) will be based upon message traffic.\29\ 
Because most Plan Participant message traffic consists of quotations, 
and Plan Participants usually disseminate quotations in all instruments 
they trade, regardless of execution volume, Execution Venues that are 
Plan Participants generally disseminate similar amounts of message 
traffic. Accordingly, basing fees for Execution Venues on message 
traffic would not provide the same degree of differentiation among 
Execution Venues that it does among Industry Members (other than 
Execution Venue ATSs). In contrast, execution volume more accurately 
delineates the different levels of trading activity of Execution 
Venues.\30\
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    \29\ Section 11.2(c) of the CAT NMS Plan.
    \30\ Section B.7., Appendix C of the CAT NMS Plan, Approval 
Order at 85005.
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    The CAT NMS Plan's funding model also is structured to avoid a 
``reduction in market quality.'' \31\ The tiered, fixed fee funding 
model is designed to limit the disincentives to providing liquidity to 
the market. For example, the Plan Participants expect that a firm that 
had a large volume of quotes would likely be categorized in one of the 
upper tiers, and would not be assessed a fee for this traffic directly 
as they would under a more directly metered model. In contrast, 
strictly variable or metered funding models based on message volume 
were far more likely to affect market behavior. In approving the CAT 
NMS Plan, the SEC stated that ``[t]he [Plan] Participants also offered 
a reasonable basis for establishing a funding model based on broad 
tiers, in that it may be . . . less likely to have an incremental 
deterrent effect on liquidity provision.'' \32\
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    \31\ Section 11.2(e) of the CAT NMS Plan.
    \32\ Approval Order at 84796.
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    The CAT NMS Plan is structured to avoid potential conflicts raised 
by the Operating Committee determining fees applicable to its own 
members--the Plan Participants. First, the Company will be operated on 
a ``break-even'' basis, with fees imposed to cover costs and an 
appropriate reserve. Any surpluses will be treated as an operational 
reserve to offset future fees and will not be distributed to the Plan 
Participants as profits.\33\ To ensure that the Plan Participants' 
operation of the CAT will not contribute to the funding of their other 
operations, Section 11.1(c) of the CAT NMS Plan specifically states 
that ``[a]ny surplus of the Company's revenues over its expenses shall 
be treated as an operational reserve to offset future fees.'' In 
addition, as set forth in Article VIII of the CAT NMS Plan, the Company 
``intends to operate in a manner such that it qualifies as a `business 
league' within the meaning of Section 501(c)(6) of the [Internal 
Revenue] Code.'' To qualify as a business league, an organization must 
``not [be] organized for profit and no part of the net earnings of [the 
organization can] inure[] to the benefit of any private shareholder or 
individual.'' \34\ As the SEC stated when approving the CAT NMS Plan, 
``the Commission believes that the Company's application for Section 
501(c)(6) business league status addresses issues raised by commenters 
about the Plan's proposed allocation of profit and loss by mitigating 
concerns that the Company's earnings could be used to benefit 
individual [Plan] Participants.'' \35\
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    \33\ Id. at 84792.
    \34\ 26 U.S.C. 501(c)(6).
    \35\ Approval Order at 84793.

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    Finally, by adopting a CAT-specific fee, the Plan Participants will 
be fully transparent regarding the costs of the CAT. Charging a general 
regulatory fee, which would be used to cover CAT costs as well as other 
regulatory costs, would be less transparent than the selected approach 
of charging a fee designated to cover CAT costs only.
    A full description of the funding model is set forth below. This 
description includes the framework for the funding model as set forth 
in the CAT NMS Plan, as well as the details as to how the funding model 
will be applied in practice, including the number of fee tiers and the 
applicable fees for each tier. The Exchange notes that the complete 
funding model is described below, including those fees that are to be 
paid by the Plan Participants. The proposed Consolidated Audit Trail 
Funding Fees, however, do not apply to the Plan Participants; the 
proposed Consolidated Audit Trail Funding Fees only apply to Industry 
Members. The CAT fees for Plan Participants will be imposed separately 
by the Operating Committee pursuant to the CAT NMS Plan.
(A) Funding Principles
    Section 11.2 of the CAT NMS Plan sets forth the principles that the 
Operating Committee applied in establishing the funding for the 
Company. The Operating Committee has considered these funding 
principles as well as the other funding requirements set forth in the 
CAT NMS Plan and in Rule 613 in developing the proposed funding model. 
The following are the funding principles in Section 11.2 of the CAT NMS 
Plan:
     To create transparent, predictable revenue streams for the 
Company that are aligned with the anticipated costs to build, operate 
and administer the CAT and other costs of the Company;
     To establish an allocation of the Company's related costs 
among Plan Participants and Industry Members that is consistent with 
the Exchange Act, taking into account the timeline for implementation 
of the CAT and distinctions in the securities trading operations of 
Plan Participants and Industry Members and their relative impact upon 
the Company's resources and operations;
     To establish a tiered fee structure in which the fees 
charged to: (i) CAT Reporters that are Execution Venues, including 
ATSs, are based upon the level of market share; (ii) Industry Members' 
non-ATS activities are based upon message traffic; (iii) the CAT 
Reporters with the most CAT-related activity (measured by market share 
and/or message traffic, as applicable) are generally comparable (where, 
for these comparability purposes, the tiered fee structure takes into 
consideration affiliations between or among CAT Reporters, whether 
Execution Venue and/or Industry Members);
     To provide for ease of billing and other administrative 
functions;
     To avoid any disincentives such as placing an 
inappropriate burden on competition and a reduction in market quality; 
and
     To build financial stability to support the Company as a 
going concern.
(B) Industry Member Tiering
    Under Section 11.3(b) of the CAT NMS Plan, the Operating Committee 
is required to establish fixed fees to be payable by Industry Members, 
based on message traffic generated by such Industry Member, with the 
Operating Committee establishing at least five and no more than nine 
tiers.
    The CAT NMS Plan clarifies that the fixed fees payable by Industry 
Members pursuant to Section 11.3(b) shall, in addition to any other 
applicable message traffic, include message traffic generated by: (i) 
An ATS that does not execute orders that is sponsored by such Industry 
Member; and (ii) routing orders to and from any ATS sponsored by such 
Industry Member. In addition, the Industry Member fees will apply to 
Industry Members that act as routing broker-dealers for exchanges. The 
Industry Member fees will not be applicable, however, to an ATS that 
qualifies as an Execution Venue, as discussed in more detail in the 
section on Execution Venue tiering.
    In accordance with Section 11.3(b), the Operating Committee 
approved a tiered fee structure for Industry Members (other than 
Execution Venue ATSs) as described in this section. In determining the 
tiers, the Operating Committee considered the funding principles set 
forth in Section 11.2 of the CAT NMS Plan, seeking to create funding 
tiers that take into account the relative impact on CAT System 
resources of different Industry Members, and that establish comparable 
fees among the CAT Reporters with the most Reportable Events. The 
Operating Committee has determined that establishing nine tiers results 
in the fairest allocation of fees, best distinguishing between Industry 
Members with differing levels of message traffic. Thus, each such 
Industry Member will be placed into one of nine tiers of fixed fees, 
based on ``message traffic'' for a defined period (as discussed below). 
A nine tier structure was selected to provide the widest range of 
levels for tiering Industry Members such that Industry Members 
submitting significantly less message traffic to the CAT would be 
adequately differentiated from Industry Members submitting 
substantially more message traffic. The Operating Committee considered 
historical message traffic generated by Industry Members across all 
exchanges and as submitted to FINRA's Order Audit Trail System 
(``OATS''), and considered the distribution of firms with similar 
levels of message traffic, grouping together firms with similar levels 
of message traffic. Based on this, the Operating Committee determined 
that nine tiers would best group firms with similar levels of message 
traffic, charging those firms with higher impact on the CAT more, while 
lowering the burden of Industry Members that have less CAT-related 
activity.
    Each Industry Member (other than Execution Venue ATSs) will be 
ranked by message traffic and tiered by predefined Industry Member 
percentages (the ``Industry Member Percentages''). The Operating 
Committee determined to use predefined percentages rather than fixed 
volume thresholds to allow the funding model to ensure that the total 
CAT fees collected recover the intended CAT costs regardless of changes 
in the total level of message traffic. To determine the fixed 
percentage of Industry Members in each tier, the Operating Committee 
analyzed historical message traffic generated by Industry Members 
across all exchanges and as submitted to OATS, and considered the 
distribution of firms with similar levels of message traffic, grouping 
together firms with similar levels of message traffic. Based on this, 
the Operating Committee identified tiers that would group firms with 
similar levels of message traffic, charging those firms with higher 
impact on the CAT more, while lowering the burden on Industry Members 
that have less CAT-related activity.
    The percentage of costs recovered by each Industry Member tier will 
be determined by predefined percentage allocations (the ``Industry 
Member Recovery Allocation''). In determining the fixed percentage 
allocation of costs recovered for each tier, the Operating Committee 
considered the impact of CAT Reporter message traffic on the CAT System 
as well as the distribution of total message volume across Industry 
Members while seeking to maintain comparable fees among the largest CAT 
Reporters. Accordingly, following the determination of the percentage 
of Industry Members in each tier, the

[[Page 23348]]

Operating Committee identified the percentage of total market volume 
for each tier based on the historical message traffic upon which 
Industry Members had been initially ranked. Taking this into account 
along with the resulting percentage of total recovery, the percentage 
allocation of costs recovered for each tier were assigned, allocating 
higher percentages of recovery to tiers with higher levels of message 
traffic while avoiding any inappropriate burden on competition. 
Furthermore, by using percentages of Industry Members and costs 
recovered per tier, the Operating Committee sought to include stability 
and elasticity within the funding model, allowing the funding model to 
respond to changes in either the total number of Industry Members or 
the total level of message traffic.
    The following chart illustrates the breakdown of nine Industry 
Member tiers across the monthly average of total equity and equity 
options orders, cancels and quotes in Q1 2016 and identifies relative 
gaps across varying levels of Industry Member message traffic as well 
as message traffic thresholds between the largest of Industry Member 
message traffic gaps. The Operating Committee referenced similar 
distribution illustrations to determine the appropriate division of 
Industry Member percentages in each tier by considering the grouping of 
firms with similar levels of message traffic and seeking to identify 
relative breakpoints in the message traffic between such groupings. In 
reviewing the chart and its corresponding table, note that while these 
distribution illustrations were referenced to help differentiate 
between Industry Member tiers, the proposed funding model is directly 
driven, not by fixed message traffic thresholds, but rather by fixed 
percentages of Industry Members across tiers to account for fluctuating 
levels of message traffic across time and to provide for the financial 
stability of the CAT by ensuring that the funding model will recover 
the required amounts regardless of changes in the number of Industry 
Members or the amount of message traffic. Actual messages in any tier 
will vary based on the actual traffic in a given measurement period, as 
well as the number of firms included in the measurement period. The 
Industry Member Percentages and Industry Member Recovery Allocation for 
each tier will remain fixed with each Industry Member's tier to be 
reassigned periodically, as described below in Section 3(a)(1)(H) 
[sic].
[GRAPHIC] [TIFF OMITTED] TN22MY17.000


[[Page 23349]]



------------------------------------------------------------------------
                                                        Monthly average
                                                        message traffic
                                                          per industry
                 Industry member tier                   member  (orders,
                                                           quotes and
                                                            cancels)
------------------------------------------------------------------------
Tier 1...............................................    >10,000,000,000
Tier 2...............................................     >1,000,000,000
Tier 3...............................................       >100,000,000
Tier 4...............................................         >2,500,000
Tier 5...............................................           >200,000
Tier 6...............................................            >50,000
Tier 7...............................................             >5,000
Tier 8...............................................             >1,000
Tier 9...............................................            <=1,000
------------------------------------------------------------------------

    Based on the above analysis, the Operating Committee approved the 
following Industry Member Percentages and Recovery Allocations:

----------------------------------------------------------------------------------------------------------------
                                                                                  Percentage  of
                                                                  Percentage  of     industry      Percentage of
                      Industry member tier                           industry         member      total recovery
                                                                   members  (%)    recovery  (%)        (%)
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           0.500            8.50            6.38
Tier 2..........................................................           2.500           35.00           26.25
Tier 3..........................................................           2.125           21.25           15.94
Tier 4..........................................................           4.625           15.75           11.81
Tier 5..........................................................           3.625            7.75            5.81
Tier 6..........................................................           4.000            5.25            3.94
Tier 7..........................................................          17.500            4.50            3.38
Tier 8..........................................................          20.125            1.50            1.13
Tier 9..........................................................          45.000            0.50            0.38
                                                                 -----------------------------------------------
    Total.......................................................             100             100              75
----------------------------------------------------------------------------------------------------------------

    For the purposes of creating these tiers based on message traffic, 
the Operating Committee determined to define the term ``message 
traffic'' separately for the period before the commencement of CAT 
reporting and for the period after the start of CAT reporting. The 
different definition for message traffic is necessary as there will be 
no Reportable Events as defined in the Plan, prior to the commencement 
of CAT reporting. Accordingly, prior to the start of CAT reporting, 
``message traffic'' will be comprised of historical equity and equity 
options orders, cancels and quotes provided by each exchange and FINRA 
over the previous three months.\36\ Prior to the start of CAT 
reporting, orders would be comprised of the total number of equity and 
equity options orders received and originated by a member of an 
exchange or FINRA over the previous three-month period, including 
principal orders, cancel/replace orders, market maker orders originated 
by a member of an exchange, and reserve (iceberg) orders as well as 
order routes and executions originated by a member of FINRA, and 
excluding order rejects and implied orders.\37\ In addition, prior to 
the start of CAT reporting, cancels would be comprised of the total 
number of equity and equity option cancels received and originated by a 
member of an exchange or FINRA over a three-month period, excluding 
order modifications (e.g., order updates, order splits, partial 
cancels). Furthermore, prior to the start of CAT reporting, quotes 
would be comprised of information readily available to the exchanges 
and FINRA, such as the total number of historical equity and equity 
options quotes received and originated by a member of an exchange or 
FINRA over the prior three-month period.
---------------------------------------------------------------------------

    \36\ The SEC approved exemptive relief permitting Options Market 
Maker quotes to be reported to the Central Repository by the 
relevant Options Exchange in lieu of requiring that such reporting 
be done by both the Options Exchange and the Options Market Maker, 
as required by Rule 613 of Regulation NMS. See Securities Exchange 
Act Release No. 77265 (Mar. 1, 2017, 81 FR 11856 (Mar. 7, 2016). 
This exemption applies to Options Market Maker quotes for CAT 
reporting purposes only. Therefore, notwithstanding the reporting 
exemption provided for Options Market Maker quotes, Options Market 
Maker quotes will be included in the calculation of total message 
traffic for Options Market Makers for purposes of tiering under the 
CAT funding model both prior to CAT reporting and once CAT reporting 
commences.
    \37\ Consequently, firms that do not have ``message traffic'' 
reported to an exchange or OATS before they are reporting to the CAT 
would not be subject to a fee until they begin to report information 
to CAT.
---------------------------------------------------------------------------

    After an Industry Member begins reporting to the CAT, ``message 
traffic'' will be calculated based on the Industry Member's Reportable 
Events reported to the CAT as will be defined in the Technical 
Specifications.\38\
---------------------------------------------------------------------------

    \38\ If an Industry Member (other than an Execution Venue ATS) 
has no orders, cancels or quotes prior to the commencement of CAT 
Reporting, or no Reportable Events after CAT reporting commences, 
then the Industry Member would not have a CAT fee obligation.
---------------------------------------------------------------------------

    The Operating Committee has determined to calculate fee tiers every 
three months, on a calendar quarter basis, based on message traffic 
from the prior three months. Based on its analysis of historical data, 
the Operating Committee believes that calculating tiers based on three 
months of data will provide the best balance between reflecting changes 
in activity by Industry Members while still providing predictability in 
the tiering for Industry Members. Because fee tiers will be calculated 
based on message traffic from the prior three months, the Operating 
Committee will begin calculating message traffic based on an Industry 
Member's Reportable Events reported to the CAT once the Industry Member 
has been reporting to the CAT for three months. Prior to that, fee 
tiers will be calculated as discussed above with regard to the period 
prior to CAT reporting.
(C) Execution Venue Tiering
    Under Section 11.3(a) of the CAT NMS Plan, the Operating Committee 
is required to establish fixed fees payable by Execution Venues. 
Section 1.1 of the CAT NMS Plan defines an Execution Venue as ``a 
[Plan] Participant or an alternative trading system (``ATS'') (as 
defined in Rule 300 of Regulation ATS) that operates pursuant to Rule 
301 of Regulation ATS (excluding any such ATS that does not execute 
orders).'' \39\
---------------------------------------------------------------------------

    \39\ Although FINRA does not operate an execution venue, because 
it is a Plan Participant, it is considered an ``Execution Venue'' 
under the Plan for purposes of determining fees.
---------------------------------------------------------------------------

    The Plan Participants determined that ATSs should be included 
within the

[[Page 23350]]

definition of Execution Venue. Given the similarity between the 
activity of exchanges and ATSs, both of which meet the definition of an 
``exchange'' as set forth in the Exchange Act and the fact that the 
similar trading models would have similar anticipated burdens on the 
CAT, the Plan Participants determined that ATSs should be treated in 
the same manner as the exchanges for the purposes of determining the 
level of fees associated with the CAT.\40\
---------------------------------------------------------------------------

    \40\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85005.
---------------------------------------------------------------------------

    Given the differences between Execution Venues that trade NMS 
Stocks and/or OTC Equity Securities and Execution Venues that trade 
Listed Options, Section 11.3(a) addresses Execution Venues that trade 
NMS Stocks and/or OTC Equity Securities separately from Execution 
Venues that trade Listed Options. Equity and Options Execution Venues 
are treated separately for two reasons. First, the differing quoting 
behavior of Equity and Options Execution Venues makes comparison of 
activity between Execution Venues difficult. Second, Execution Venue 
tiers are calculated based on market share of share volume, and it is 
therefore difficult to compare market share between asset classes 
(i.e., equity shares versus options contracts). Discussed below is how 
the funding model treats the two types of Execution Venues.
(I) NMS Stocks and OTC Equity Securities
    Section 11.3(a)(i) of the CAT NMS Plan states that each Execution 
Venue that (i) executes transactions or, (ii) in the case of a national 
securities association, has trades reported by its members to its trade 
reporting facility or facilities for reporting transactions effected 
otherwise than on an exchange, in NMS Stocks or OTC Equity Securities 
will pay a fixed fee depending on the market share of that Execution 
Venue in NMS Stocks and OTC Equity Securities, with the Operating 
Committee establishing at least two and not more than five tiers of 
fixed fees, based on an Execution Venue's NMS Stocks and OTC Equity 
Securities market share. For these purposes, market share for Execution 
Venues that execute transactions will be calculated by share volume, 
and market share for a national securities association that has trades 
reported by its members to its trade reporting facility or facilities 
for reporting transactions effected otherwise than on an exchange in 
NMS Stocks or OTC Equity Securities will be calculated based on share 
volume of trades reported, provided, however, that the share volume 
reported to such national securities association by an Execution Venue 
shall not be included in the calculation of such national security 
association's market share.
    In accordance with Section 11.3(a)(i) of the CAT NMS Plan, the 
Operating Committee approved a tiered fee structure for Equity 
Execution Venues and Option Execution Venues. In determining the Equity 
Execution Venue Tiers, the Operating Committee considered the funding 
principles set forth in Section 11.2 of the CAT NMS Plan, seeking to 
create funding tiers that take into account the relative impact on 
system resources of different Equity Execution Venues, and that 
establish comparable fees among the CAT Reporters with the most 
Reportable Events. Each Equity Execution Venue will be placed into one 
of two tiers of fixed fees, based on the Execution Venue's NMS Stocks 
and OTC Equity Securities market share. In choosing two tiers, the 
Operating Committee performed an analysis similar to that discussed 
above with regard to the non-Execution Venue Industry Members to 
determine the number of tiers for Equity Execution Venues. The 
Operating Committee determined to establish two tiers for Equity 
Execution Venues, rather than a larger number of tiers as established 
for non-Execution Venue Industry Members, because the two tiers were 
sufficient to distinguish between the smaller number of Equity 
Execution Venues based on market share. Furthermore, the incorporation 
of additional Equity Execution Venue tiers would result in 
significantly higher fees for Tier 1 Equity Execution Venues and 
diminish comparability between Execution Venues and Industry Members.
    Each Equity Execution Venue will be ranked by market share and 
tiered by predefined Execution Venue percentages, (the ``Equity 
Execution Venue Percentages''). In determining the fixed percentage of 
Equity Execution Venues in each tier, the Operating Committee looked at 
historical market share of share volume for execution venues. Equities 
Execution Venue market share of share volume were sourced from market 
statistics made publicly-available by Bats Global Markets, Inc. 
(``Bats''). ATS market share of share volume was sourced from market 
statistics made publicly-available by FINRA. FINRA trading [sic] 
reporting facility (``TRF'') market share of share volume was sourced 
from market statistics made publicly available by Bats. As indicated by 
FINRA, ATSs accounted for 37.80% of the share volume across the TRFs 
during the recent tiering period. A 37.80/62.20 split was applied to 
the ATS and non-ATS breakdown of FINRA market share, with FINRA tiered 
based only on the non-ATS portion of its TRF market share of share 
volume.
    Based on this, the Operating Committee considered the distribution 
of Execution Venues, and grouped together Execution Venues with similar 
levels of market share of share volume. In doing so, the Plan 
Participants considered that, as previously noted, Execution Venues in 
many cases have similar levels of message traffic due to quoting 
activity, and determined that it was simpler and more appropriate to 
have fewer, rather than more, Execution Venue tiers to distinguish 
between Execution Venues.
    The percentage of costs recovered by each Equity Execution Venue 
tier will be determined by predefined percentage allocations (the 
``Equity Execution Venue Recovery Allocation''). In determining the 
fixed percentage allocation of costs recovered for each tier, the 
Operating Committee considered the impact of CAT Reporter market share 
activity on the CAT System as well as the distribution of total market 
volume across Equity Execution Venues while seeking to maintain 
comparable fees among the largest CAT Reporters. Accordingly, following 
the determination of the percentage of Execution Venues in each tier, 
the Operating Committee identified the percentage of total market 
volume for each tier based on the historical market share upon which 
Execution Venues had been initially ranked. Taking this into account 
along with the resulting percentage of total recovery, the percentage 
allocation of costs recovered for each tier were assigned, allocating 
higher percentages of recovery to the tier with a higher level of 
market share while avoiding any inappropriate burden on competition. 
Furthermore, due to the similar levels of impact on the CAT System 
across Execution Venues, there is less variation in CAT Fees between 
the highest and lowest of tiers for Execution Venues. Furthermore, by 
using percentages of Equity Execution Venues and costs recovered per 
tier, the Operating Committee sought to include stability and 
elasticity within the funding model, allowing the funding model to 
respond to changes in either the total number of Equity Execution 
Venues or changes in market share.
    Based on this analysis, the Operating Committee approved the 
following Equity Execution Venue Percentages and Recovery Allocations:

[[Page 23351]]



----------------------------------------------------------------------------------------------------------------
                                                                  Percentage  of   Percentage of
                                                                      equity         execution     Percentage of
                   Equity execution venue tier                       execution         venue      total recovery
                                                                    venues  (%)    recovery  (%)        (%)
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           25.00           26.00            6.50
Tier 2..........................................................           75.00           49.00           12.25
                                                                 -----------------------------------------------
    Total.......................................................             100              75           18.75
----------------------------------------------------------------------------------------------------------------

    The following table exhibits the relative separation of market 
share of share volume between Tier 1 and Tier 2 Equity Execution 
Venues. In reviewing the table, note that while this division was 
referenced as a data point to help differentiate between Equity 
Execution Venue tiers, the proposed funding model is directly driven 
not by market share thresholds, but rather by fixed percentages of 
Equity Execution Venues across tiers to account for fluctuating levels 
of market share across time. Actual market share in any tier will vary 
based on the actual market activity in a given measurement period, as 
well as the number of Equity Execution Venues included in the 
measurement period. The Equity Execution Venue Percentages and Equity 
Execution Venue Recovery Allocation for each tier will remain fixed 
with each Equity Execution Venue tier to be reassigned periodically, as 
described below in Section 3(a)(1)(I) [sic].

------------------------------------------------------------------------
                                                           Equity market
               Equity execution venue tier                share of share
                                                            volume  (%)
------------------------------------------------------------------------
Tier 1..................................................             >=1
Tier 2..................................................              <1
------------------------------------------------------------------------

(II) Listed Options
    Section 11.3(a)(ii) of the CAT NMS Plan states that each Execution 
Venue that executes transactions in Listed Options will pay a fixed fee 
depending on the Listed Options market share of that Execution Venue, 
with the Operating Committee establishing at least two and no more than 
five tiers of fixed fees, based on an Execution Venue's Listed Options 
market share. For these purposes, market share will be calculated by 
contract volume.
    In accordance with Section 11.3(a)(ii) of the CAT NMS Plan, the 
Operating Committee approved a tiered fee structure for Options 
Execution Venues. In determining the tiers, the Operating Committee 
considered the funding principles set forth in Section 11.2 of the CAT 
NMS Plan, seeking to create funding tiers that take into account the 
relative impact on system resources of different Options Execution 
Venues, and that establish comparable fees among the CAT Reporters with 
the most Reportable Events. Each Options Execution Venue will be placed 
into one of two tiers of fixed fees, based on the Execution Venue's 
Listed Options market share. In choosing two tiers, the Operating 
Committee performed an analysis similar to that discussed above with 
regard to Industry Members (other than Execution Venue ATSs) to 
determine the number of tiers for Options Execution Venues. The 
Operating Committee determined to establish two tiers for Options 
Execution Venues, rather than a larger number of tiers as established 
for Industry Members (other than Execution Venue ATSs), because the two 
tiers were sufficient to distinguish between the smaller number of 
Options Execution Venues based on market share. Furthermore, due to the 
smaller number of Options Execution Venues, the incorporation of 
additional Options Execution Venue tiers would result in significantly 
higher fees for Tier 1 Options Execution Venues and reduce 
comparability between Execution Venues and Industry Members.
    Each Options Execution Venue will be ranked by market share and 
tiered by predefined Execution Venue percentages, (the ``Options 
Execution Venue Percentages''). To determine the fixed percentage of 
Options Execution Venues in each tier, the Operating Committee analyzed 
the historical and publicly available market share of Options Execution 
Venues to group Options Execution Venues with similar market shares 
across the tiers. Options Execution Venue market share of share volume 
were sourced from market statistics made publicly-available by Bats. 
The process for developing the Options Execution Venue Percentages was 
the same as discussed above with regard to Equity Execution Venues.
    The percentage of costs recovered by each Options Execution Venue 
tier will be determined by predefined percentage allocations (the 
``Options Execution Venue Recovery Allocation''). In determining the 
fixed percentage allocation of costs recovered for each tier, the 
Operating Committee considered the impact of CAT Reporter market share 
activity on the CAT System as well as the distribution of total market 
volume across Options Execution Venues while seeking to maintain 
comparable fees among the largest CAT Reporters. Furthermore, by using 
percentages of Options Execution Venues and costs recovered per tier, 
the Operating Committee sought to include stability and elasticity 
within the funding model, allowing the funding model to respond to 
changes in either the total number of Options Execution Venues or 
changes in market share. The process for developing the Options 
Execution Venue Recovery Allocation was the same as discussed above 
with regard to Equity Execution Venues.
    Based on this analysis, the Operating Committee approved the 
following Options Execution Venue Percentages and Recovery Allocations:

----------------------------------------------------------------------------------------------------------------
                                                                  Percentage  of   Percentage of
                                                                      options        execution     Percentage of
                  Options execution venue tier                       execution         venue      total recovery
                                                                      venues         recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           20.00            5.00
Tier 2..........................................................           25.00            5.00            1.25
                                                                 -----------------------------------------------
    Total.......................................................             100              25            6.25
----------------------------------------------------------------------------------------------------------------


[[Page 23352]]

    The following table exhibits the relative separation of market 
share of share volume between Tier 1 and Tier 2 Options Execution 
Venues. In reviewing the table, note that while this division was 
referenced as a data point to help differentiate between Options 
Execution Venue tiers, the proposed funding model is directly driven, 
not by market share thresholds, but rather by fixed percentages of 
Options Execution Venues across tiers to account for fluctuating levels 
of market share across time. Actual market share in any tier will vary 
based on the actual market activity in a given measurement period, as 
well as the number of Options Execution Venues included in the 
measurement period. The Options Execution Venue Percentages and Equity 
Execution Venue Recovery Allocation for each tier will remain fixed 
with each Options Execution Venue tier to be reassigned periodically, 
as described below in Section 3(a)(1)(I) [sic].

------------------------------------------------------------------------
                                                              Options
                                                           market share
              Options execution venue tier                   of share
                                                              volume
------------------------------------------------------------------------
Tier 1..................................................             >=1
Tier 2..................................................              <1
------------------------------------------------------------------------

(III) Market Share/Tier Assignments
    The Operating Committee determined that, prior to the start of CAT 
reporting, market share for Execution Venues would be sourced from 
publicly-available market data. Options and equity volumes for Plan 
Participants will be sourced from market data made publicly available 
by Bats while Execution Venue ATS volumes will be sourced from market 
data made publicly available by FINRA. Set forth in the Appendix are 
two charts, one listing the current Equity Execution Venues, each with 
its rank and tier, and one listing the current Options Execution 
Venues, each with its rank and tier.
    After the commencement of CAT reporting, market share for Execution 
Venues will be sourced from data reported to the CAT. Equity Execution 
Venue market share will be determined by calculating each Equity 
Execution Venue's proportion of the total volume of NMS Stock and OTC 
Equity shares reported by all Equity Execution Venues during the 
relevant time period. Similarly, market share for Options Execution 
Venues will be determined by calculating each Options Execution Venue's 
proportion of the total volume of Listed Options contracts reported by 
all Options Execution Venues during the relevant time period.
    The Operating Committee has determined to calculate fee tiers for 
Execution Venues every three months based on market share from the 
prior three months. Based on its analysis of historical data, the 
Operating Committee believes calculating tiers based on three months of 
data will provide the best balance between reflecting changes in 
activity by Execution Venues while still providing predictability in 
the tiering for Execution Venues.
(D) Allocation of Costs
    In addition to the funding principles discussed above, including 
comparability of fees, Section 11.1(c) of the CAT NMS Plan also 
requires expenses to be fairly and reasonably shared among the Plan 
Participants and Industry Members. Accordingly, in developing the 
proposed fee schedules pursuant to the funding model, the Operating 
Committee calculated how the CAT costs would be allocated between 
Industry Members and Execution Venues, and how the portion of CAT costs 
allocated to Execution Venues would be allocated between Equity 
Execution Venues and Options Execution Venues. These determinations are 
described below.
(I) Allocation Between Industry Members and Execution Venues
    In determining the cost allocation between Industry Members (other 
than Execution Venue ATSs) and Execution Venues, the Operating 
Committee analyzed a range of possible splits for revenue recovered 
from such Industry Members and Execution Venues. Based on this 
analysis, the Operating Committee determined that 75 percent of total 
costs recovered would be allocated to Industry Members (other than 
Execution Venue ATSs) and 25 percent would be allocated to Execution 
Venues. The Operating Committee determined that this 75/25 division 
maintained the greatest level of comparability across the funding 
model, keeping in view that comparability should consider affiliations 
among or between CAT Reporters (e.g., firms with multiple Industry 
Members and/or exchange licenses). For example, the cost allocation 
establishes fees for the largest Industry Members (i.e., those Industry 
Members in Tiers 1, 2 and 3) that are comparable to the largest Equity 
Execution Venues and Options Execution Venues (i.e., those Execution 
Venues in Tier 1). In addition, the cost allocation establishes fees 
for Execution Venue complexes that are comparable to those of Industry 
Member complexes. For example, when analyzing alternative allocations, 
other possible allocations led to much higher fees for larger Industry 
Members than for larger Execution Venues or vice versa, and/or led to 
much higher fees for Industry Member complexes than Execution Venue 
complexes or vice versa.
    Furthermore, the allocation of total CAT costs recovered recognizes 
the difference in the number of CAT Reporters that are Industry Members 
versus CAT Reporters that are Execution Venues. Specifically, the cost 
allocation takes into consideration that there are approximately 25 
times more Industry Members expected to report to the CAT than 
Execution Venues (e.g., an estimated 1,630 Industry Members versus 70 
Execution Venues as of January 2017).
(II) Allocation Between Equity Execution Venues and Options Execution 
Venues
    The Operating Committee also analyzed how the portion of CAT costs 
allocated to Execution Venues would be allocated between Equity 
Execution Venues and Options Execution Venues. In considering this 
allocation of costs, the Operating Committee analyzed a range of 
alternative splits for revenue recovered between Equity and Options 
Execution Venues, including a 70/30, 67/33, 65/35, 50/50 and 25/75 
split. Based on this analysis, the Operating Committee determined to 
allocate 75 percent of Execution Venue costs recovered to Equity 
Execution Venues and 25 percent to Options Execution Venues. The 
Operating Committee determined that a 75/25 division between Equity and 
Options Execution Venues maintained elasticity across the funding model 
as well the greatest level of fee equitability and comparability based 
on the current number of Equity and Options Execution Venues. For 
example, the allocation establishes fees for the larger Equity 
Execution Venues that are comparable to the larger Options Execution 
Venues, and fees for the smaller Equity Execution Venues that are 
comparable to the smaller Options Execution Venues. In addition to fee 
comparability between Equity Execution Venues and Options Execution 
Venues, the allocation also establishes equitability between larger 
(Tier 1) and smaller (Tier 2) Execution Venues based upon the level of 
market share. Furthermore, the allocation is intended to reflect the 
relative levels of current equity and options order events.
(E) Fee Levels
    The Operating Committee determined to establish a CAT-specific fee 
to collectively recover the costs of building and operating the CAT. 
Accordingly,

[[Page 23353]]

under the funding model, the sum of the CAT Fees is designed to recover 
the total cost of the CAT. The Operating Committee has determined 
overall CAT costs to be comprised of Plan Processor costs and non-Plan 
Processor costs, which are estimated to be $50,700,000 in total for the 
year beginning November 21, 2016.\41\
---------------------------------------------------------------------------

    \41\ It is anticipated that CAT-related costs incurred prior to 
November 21, 2016 will be addressed via a separate fee filing.
---------------------------------------------------------------------------

    The Plan Processor costs relate to costs incurred by the Plan 
Processor and consist of the Plan Processor's current estimates of 
average yearly ongoing costs, including development cost, which total 
$37,500,000. This amount is based upon the fees due to the Plan 
Processor pursuant to the agreement with the Plan Processor.
    The non-Plan Processor estimated costs incurred and to be incurred 
by the Company through November 21, 2017 consist of three categories of 
costs. The first category of such costs are third party support costs, 
which include historic legal fees, consulting fees and audit fees from 
November 21, 2016 until the date of filing as well as estimated third 
party support costs for the rest of the year. These amount to an 
estimated $5,200,000. The second category of non-Plan Processor costs 
are estimated insurance costs for the year. Based on discussions with 
potential insurance providers, assuming $2-5 million insurance premium 
on $100 million in coverage, the Company has received an estimate of 
$3,000,000 for the annual cost. The final cost figures will be 
determined following receipt of final underwriter quotes. The third 
category of non-Plan Processor costs is the operational reserve, which 
is comprised of three months of ongoing Plan Processor costs 
($9,375,000), third party support costs ($1,300,000) and insurance 
costs ($750,000). The Operating Committee aims to accumulate the 
necessary funds for the establishment of the three-month operating 
reserve for the Company through the CAT Fees charged to CAT Reporters 
for the year. On an ongoing basis, the Operating Committee will account 
for any potential need for the replenishment of the operating reserve 
or other changes to total cost during its annual budgeting process. The 
following table summarizes the Plan Processor and non-Plan Processor 
cost components which comprise the total CAT costs of $50,700,000.
---------------------------------------------------------------------------

    \42\ This $5,000,000 represents the gradual accumulation of the 
funds for a target operating reserve of $11,425,000.

------------------------------------------------------------------------
           Cost category               Cost component         Amount
------------------------------------------------------------------------
Plan Processor....................  Operational Costs...     $37,500,000
Non-Plan Processor................  Third Party Support        5,200,000
                                     Costs.
                                    Operational Reserve.  \42\ 5,000,000
                                    Insurance Costs.....       3,000,000
                                   -------------------------------------
    Estimated Total...............  ....................      50,700,000
------------------------------------------------------------------------

    Based on the estimated costs and the calculations for the funding 
model described above, the Operating Committee determined to impose the 
following fees: \43\
---------------------------------------------------------------------------

    \43\ Note that all monthly, quarterly and annual CAT Fees have 
been rounded to the nearest dollar.
    \44\ This column represents the approximate total CAT Fees paid 
each year by each Industry Member (other than Execution Venue ATSs) 
(i.e., ``CAT Fees Paid Annually'' = ``Monthly CAT Fee'' x 12 
months).
    \45\ This column represents the approximate total CAT Fees paid 
each year by each Execution Venue for NMS Stocks and OTC Equity 
Securities (i.e., ``CAT Fees Paid Annually'' = ``Monthly CAT Fee'' x 
12 months).
---------------------------------------------------------------------------

    For Industry Members (other than Execution Venue ATSs):

----------------------------------------------------------------------------------------------------------------
                                                                   Monthly  CAT   Quarterly  CAT   CAT fees paid
                              Tier                                      fee             fee        annually \44\
----------------------------------------------------------------------------------------------------------------
1...............................................................         $33,668        $101,004        $404,016
2...............................................................          27,051          81,153         324,612
3...............................................................          19,239          57,717         230,868
4...............................................................           6,655          19,965          79,860
5...............................................................           4,163          12,489          49,956
6...............................................................           2,560           7,680          30,720
7...............................................................             501           1,503           6,012
8...............................................................             145             435           1,740
9...............................................................              22              66             264
----------------------------------------------------------------------------------------------------------------

    For Execution Venues for NMS Stocks and OTC Equity Securities:

----------------------------------------------------------------------------------------------------------------
                                                                   Monthly  CAT   Quarterly  CAT   CAT fees paid
                              Tier                                      fee             fee        annually \45\
----------------------------------------------------------------------------------------------------------------
1...............................................................         $21,125         $63,375        $253,500
2...............................................................          12,940          38,820         155,280
----------------------------------------------------------------------------------------------------------------

    For Execution Venues for Listed Options:

[[Page 23354]]



----------------------------------------------------------------------------------------------------------------
                                                                   Monthly  CAT   Quarterly  CAT   CAT fees paid
                              Tier                                      fee             fee        annually \46\
----------------------------------------------------------------------------------------------------------------
1...............................................................         $19,205         $57,615        $230,460
2...............................................................          13,204          39,612         158,448
----------------------------------------------------------------------------------------------------------------

    As noted above, the fees set forth in the tables reflect the 
Operating Committee's decision to ensure comparable fees between 
Execution Venues and Industry Members. The fees of the top tiers for 
Industry Members (other than Execution Venue ATSs) are not identical to 
the top tier for Execution Venues, however, because the Operating 
Committee also determined that the fees for Execution Venue complexes 
should be comparable to those of Industry Member complexes. The 
difference in the fees reflects this decision to recognize 
affiliations.
---------------------------------------------------------------------------

    \46\ This column represents the approximate total CAT Fees paid 
each year by each Execution Venue for Listed Options (i.e., ``CAT 
Fees Paid Annually'' = ``Monthly CAT Fee'' x 12 months).
---------------------------------------------------------------------------

    The Operating Committee has calculated the schedule of effective 
fees for Industry Members (other than Execution Venue ATSs) and 
Execution Venues in the following manner. Note that the calculation of 
CAT Reporter fees assumes 53 Equity Execution Venues, 15 Options 
Execution Venues and 1,631 Industry Members (other than Execution Venue 
ATSs) as of January 2017.

                              Calculation of Annual Tier Fees for Industry Members
                                                    [``IM'']
----------------------------------------------------------------------------------------------------------------
                                                                                   Percentage of
                                                                   Percentage of     industry      Percentage of
                      Industry member tier                           industry         member      total recovery
                                                                    members (%)    recovery (%)         (%)
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           0.500            8.50            6.38
Tier 2..........................................................           2.500           35.00           26.25
Tier 3..........................................................           2.125           21.25           15.94
Tier 4..........................................................           4.625           15.75           11.81
Tier 5..........................................................           3.625            7.75            5.81
Tier 6..........................................................           4.000            5.25            3.94
Tier 7..........................................................          17.500            4.50            3.38
Tier 8..........................................................          20.125            1.50            1.13
Tier 9..........................................................          45.000            0.50            0.38
                                                                 -----------------------------------------------
    Total.......................................................             100             100              75
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                                                             Estimated
                                                             number of
                  Industry member tier                       industry
                                                              members
------------------------------------------------------------------------
Tier 1..................................................               8
Tier 2..................................................              41
Tier 3..................................................              35
Tier 4..................................................              75
Tier 5..................................................              59
Tier 6..................................................              65
Tier 7..................................................             285
Tier 8..................................................             328
Tier 9..................................................             735
                                                         ---------------
    Total...............................................           1,631
------------------------------------------------------------------------


[[Page 23355]]

[GRAPHIC] [TIFF OMITTED] TN22MY17.001


                      Calculation of Annual Tier Fees for Equity Execution Venues (``EV'')
----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of   Percentage of
                                                                      equity         execution     Percentage of
                   Equity execution venue tier                       execution         venue      total recovery
                                                                      venues         recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           25.00           26.00            6.50
Tier 2..........................................................           75.00           49.00           12.25
                                                                 -----------------------------------------------
    Total.......................................................             100              75           18.75
----------------------------------------------------------------------------------------------------------------


[[Page 23356]]


------------------------------------------------------------------------
                                                             Estimated
                                                             number of
               Equity execution venue tier                    equity
                                                             execution
                                                              venues
------------------------------------------------------------------------
Tier 1..................................................              13
Tier 2..................................................              40
                                                         ---------------
    Total...............................................              53
------------------------------------------------------------------------

                                                          [GRAPHIC] [TIFF OMITTED] TN22MY17.002
                                                          

                      Calculation of Annual Tier Fees for Options Execution Venues (``EV'')
----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of   Percentage of
                                                                      options        execution     Percentage of
                  Options execution venue tier                       execution         venue      total recovery
                                                                      venues         recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           20.00            5.00
Tier 2..........................................................           25.00            5.00            1.25
                                                                 -----------------------------------------------
    Total.......................................................             100              25            6.25
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                                                             Estimated
                                                             number of
              Options execution venue tier                    options
                                                             execution
                                                              venues
------------------------------------------------------------------------
Tier 1..................................................              11
Tier 2..................................................               4
                                                         ---------------
    Total...............................................              15
------------------------------------------------------------------------

                                                          [GRAPHIC] [TIFF OMITTED] TN22MY17.003
                                                          

                                         Traceability of Total CAT Fees
----------------------------------------------------------------------------------------------------------------
                                                                     Estimated
                Type                     Industry  member tier       number of     CAT fees paid  Total recovery
                                                                      members        annually
----------------------------------------------------------------------------------------------------------------
Industry members....................  Tier 1....................               8        $404,016      $3,232,128
                                      Tier 2....................              41         324,612      13,309,092
                                      Tier 3....................              35         230,868       8,080,380
                                      Tier 4....................              75          79,860       5,989,500
                                      Tier 5....................              59          49,956       2,947,404
                                      Tier 6....................              65          30,720       1,996,800
                                      Tier 7....................             285           6,012       1,713,420
                                      Tier 8....................             328           1,740         570,720

[[Page 23357]]

 
                                      Tier 9....................             735             264         194,040
                                     ---------------------------------------------------------------------------
    Total...........................  ..........................           1,631  ..............      38,033,484
Equity Execution Venues.............  Tier 1....................              13         253,500       3,295,500
                                      Tier 2....................              40         155,280       6,211,200
                                     ---------------------------------------------------------------------------
    Total...........................  ..........................              53  ..............       9,506,700
Options Execution Venues............  Tier 1....................              11         230,460       2,535,060
                                      Tier 2....................               4         158,448         633,792
                                     ---------------------------------------------------------------------------
    Total...........................  ..........................              15  ..............       3,168,852
                                                                 -----------------------------------------------
        Total.......................  ..........................  ..............  ..............      50,709,036
                                                                 -----------------------------------------------
            Excess \47\.............  ..........................  ..............  ..............           9,036
----------------------------------------------------------------------------------------------------------------

(F) Comparability of Fees
---------------------------------------------------------------------------

    \47\ The amount in excess of the total CAT costs will contribute 
to the gradual accumulation of the target operating reserve of 
$11.425 million.
---------------------------------------------------------------------------

    The funding principles require a funding model in which the fees 
charged to the CAT Reporters with the most CAT-related activity 
(measured by market share and/or message traffic, as applicable) are 
generally comparable (where, for these comparability purposes, the 
tiered fee structure takes into consideration affiliations between or 
among CAT Reporters, whether Execution Venue and/or Industry Members). 
Accordingly, in creating the model, the Operating Committee sought to 
take account of the affiliations between or among CAT Reporters--that 
is, where affiliated entities may have multiple Industry Member and/or 
Execution Venue licenses, by maintaining relative comparability of fees 
among such affiliations with the most expected CAT-related activity. To 
do this, the Plan Participants identified representative affiliations 
in the largest tier of both Execution Venues and Industry Members and 
compared the aggregate fees that would be paid by such firms.
    While the proposed fees for Tier 1 and Tier 2 Industry Members are 
relatively higher than those of Tier 1 and Tier 2 Execution Venues, 
Execution Venue complex fees are relatively higher than those of 
Industry Member complexes largely due to affiliations between Execution 
Venues. The tables set forth below describe the largest Execution Venue 
and Industry Member complexes and their associated fees: \48\
---------------------------------------------------------------------------

    \48\ Note that the analysis of the complexes was performed on a 
best efforts basis, as all affiliations between the 1631 Industry 
Members may not be included.

                                            Execution Venue Complexes
----------------------------------------------------------------------------------------------------------------
                                               Listing of equity          Listing of options       Total fees by
         Execution venue complex             execution venue tiers       execution venue tier       EV complex
----------------------------------------------------------------------------------------------------------------
Execution Venue Complex 1...............   Tier 1 (x2)......   Tier 1 (x4)......      $1,900,962
                                           Tier 2 (x1)......   Tier 2 (x2)......
Execution Venue Complex 2...............   Tier 1 (x2)......   Tier 1 (x2)......       1,863,801
                                                                       Tier 2 (x1)......
Execution Venue Complex 3...............   Tier 1 (x2)......   Tier 1 (x2)......       1,278,447
                                           Tier 2 (x2)......
----------------------------------------------------------------------------------------------------------------


                                            Industry Member Complexes
----------------------------------------------------------------------------------------------------------------
                                          Listing of industry member                               Total fees by
         Industry member complex                     tiers               Listing of ATS tiers       IM complex
----------------------------------------------------------------------------------------------------------------
Industry Member Complex 1...............   Tier 1 (x2)......   Tier 2 (x1)......        $963,300
Industry Member Complex 2...............   Tier 1 (x1)......   Tier 2 (x3)......         949,674
                                           Tier 4 (x1)......
Industry Member Complex 3...............   Tier 1 (x1)......   Tier 2 (x1)......         883,888
                                           Tier 2 (x1)......
Industry Member Complex 4...............   Tier 1 (x1)......  N/A.......................         808,472
                                           Tier 2 (x1)......
                                           Tier 4 (x1)......
Industry Member Complex 5...............   Tier 2 (x1)......   Tier 2 (x1)......         796,595
                                           Tier 3 (x1)......
                                           Tier 4 (x1)......
                                           Tier 7 (x1)......
----------------------------------------------------------------------------------------------------------------


[[Page 23358]]

(G) Billing Onset
    Under Section 11.1(c) of the CAT NMS Plan, to fund the development 
and implementation of the CAT, the Company shall time the imposition 
and collection of all fees on Plan Participants and Industry Members in 
a manner reasonably related to the timing when the Company expects to 
incur such development and implementation costs. The Company is 
currently incurring such development and implementation costs and will 
continue to do so prior to the commencement of CAT reporting and 
thereafter. For example, the Plan Processor has required up-front 
payments to begin building the CAT. In addition, the Company continues 
to incur consultant and legal expenses on an on-going basis to 
implement the CAT. Accordingly, the Operating Committee determined that 
all CAT Reporters, including both Industry Members and Execution Venues 
(including Plan Participants), would begin to be invoiced as promptly 
as possible following the establishment of a billing mechanism. The 
Exchange will issue an Information Memorandum to its members when the 
billing mechanism is established, specifying the date when such 
invoicing of Industry Members will commence.
(H) Changes to Fee Levels and Tiers
    Section 11.3(d) of the CAT NMS Plan states that ``[t]he Operating 
Committee shall review such fee schedule on at least an annual basis 
and shall make any changes to such fee schedule that it deems 
appropriate. The Operating Committee is authorized to review such fee 
schedule on a more regular basis, but shall not make any changes on 
more than a semi-annual basis unless, pursuant to a Supermajority Vote, 
the Operating Committee concludes that such change is necessary for the 
adequate funding of the Company.'' With such reviews, the Operating 
Committee will review the distribution of Industry Members and 
Execution Venues across tiers, and make any updates to the percentage 
of CAT Reporters allocated to each tier as may be necessary. In 
addition, the reviews will evaluate the estimated ongoing CAT costs and 
the level of the operating reserve. To the extent that the total CAT 
costs decrease, the fees would be adjusted downward, and, to the extent 
that the total CAT costs increase, the fees would be adjusted 
upward.\49\ Furthermore, any surplus of the Company's revenues over its 
expenses is to be included within the operational reserve to offset 
future fees. The limitations on more frequent changes to the fee, 
however, are intended to provide budgeting certainty for the CAT 
Reporters and the Company.\50\ To the extent that the Operating 
Committee approves changes to the number of tiers in the funding model 
or the fees assigned to each tier, then the Exchange will file such 
changes with the SEC pursuant to Section 19(b) of the Exchange Act, and 
any such changes will become effective in accordance with the 
requirements of Section 19(b).
---------------------------------------------------------------------------

    \49\ The CAT Fees are designed to recover the costs associated 
with the CAT. Accordingly, CAT Fees would not be affected by 
increases or decreases in other non-CAT expenses incurred by the 
SROs, such as any changes in costs related to the retirement of 
existing regulatory systems, such as OATS.
    \50\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
---------------------------------------------------------------------------

(I) Initial and Periodic Tier Reassignments
    The Operating Committee has determined to calculate fee tiers every 
three months based on market share or message traffic, as applicable, 
from the prior three months. For the initial tier assignments, the 
Company will calculate the relevant tier for each CAT Reporter using 
the three months of data prior to the commencement date. As with the 
initial tier assignment, for the tri-monthly reassignments, the Company 
will calculate the relevant tier using the three months of data prior 
to the relevant tri-monthly date. The Exchange notes that any movement 
of CAT Reporters between tiers will not change the criteria for each 
tier or the fee amount corresponding to each tier.
    In performing the tri-monthly reassignments, the Exchange notes 
that the percentage of CAT Reporters in each assigned tier is relative. 
Therefore, a CAT Reporter's assigned tier will depend, not only on its 
own message traffic or market share, but it also will depend on the 
message traffic/market share across all CAT Reporters. For example, the 
percentage of Industry Members (other than Execution Venue ATSs) in 
each tier is relative such that such Industry Member's assigned tier 
will depend on message traffic generated across all CAT Reporters as 
well as the total number of CAT Reporters. The Operating Committee will 
inform CAT Reporters of their assigned tier every three months 
following the periodic tiering process, as the funding model will 
compare an individual CAT Reporter's activity to that of other CAT 
Reporters in the marketplace.
    The following demonstrates a tier reassignment. In accordance with 
the funding model, the top 75% of Options Execution Venues in market 
share are categorized as Tier 1 while the bottom 25% of Options 
Execution Venues in market share are categorized as Tier 2. In the 
sample scenario below, Options Execution Venue L is initially 
categorized as a Tier 2 Options Execution Venue in Period A due to its 
market share. When market share is recalculated for Period B, the 
market share of Execution Venue L increases, and it is therefore 
subsequently reranked and reassigned to Tier 1 in Period B. 
Correspondingly, Options Execution Venue K, initially a Tier 1 Options 
Execution Venue in Period A, is reassigned to Tier 2 in Period B due to 
decreases in its market share of share volume.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Period A                                                                     Period B
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Market share                                                             Market share
            Options execution venue                   rank             Tier               Options execution venue              rank            Tier
--------------------------------------------------------------------------------------------------------------------------------------------------------
Options Execution Venue A......................               1               1   Options Execution Venue A.............               1               1
Options Execution Venue B......................               2               1   Options Execution Venue B.............               2               1
Options Execution Venue C......................               3               1   Options Execution Venue C.............               3               1
Options Execution Venue D......................               4               1   Options Execution Venue D.............               4               1
Options Execution Venue E......................               5               1   Options Execution Venue E.............               5               1
Options Execution Venue F......................               6               1   Options Execution Venue F.............               6               1
Options Execution Venue G......................               7               1   Options Execution Venue I.............               7               1
Options Execution Venue H......................               8               1   Options Execution Venue H.............               8               1
Options Execution Venue I......................               9               1   Options Execution Venue G.............               9               1
Options Execution Venue J......................              10               1   Options Execution Venue J.............              10               1
Options Execution Venue K......................              11               1   Options Execution Venue L.............              11               1

[[Page 23359]]

 
Options Execution Venue L......................              12               2   Options Execution Venue K.............              12               2
Options Execution Venue M......................              13               2   Options Execution Venue N.............              13               2
Options Execution Venue N......................              14               2   Options Execution Venue M.............              14               2
Options Execution Venue O......................              15               2   Options Execution Venue O.............              15               2
--------------------------------------------------------------------------------------------------------------------------------------------------------

(3) Proposed CAT Fee Schedule
    The Exchange proposes the Consolidated Audit Trail Funding Fees to 
implement the CAT Fees determined by the Operating Committee on the 
Exchange's Industry Members. The proposed fee schedule under Section R 
of the CHX Fee Schedule has three sections, covering definitions, the 
fee schedule for CAT Fees, and the timing and manner of payments. Each 
of these sections is discussed in detail below.
(A) Definitions
    Paragraph (a) of the proposed fee schedule sets forth the 
definitions for the proposed fee schedule. Paragraph (a)(1) states 
that, for purposes of the Consolidated Audit Trail Funding Fees, the 
terms ``CAT NMS Plan,'' ``Industry Member,'' ``NMS Stock,'' ``OTC 
Equity Security'', and ``Plan Participant'' are defined as set forth 
under Article 23, Rule 1 (Consolidated Audit Trail--Definitions) of the 
CHX Rules.
    The proposed fee schedule imposes different fees on Equity ATSs and 
Industry Members that are not Equity ATSs. Accordingly, the proposed 
fee schedule defines the term ``Equity ATS.'' First, paragraph (a)(2) 
defines an ``ATS'' to mean an alternative trading system as defined in 
Rule 300(a) of Regulation ATS under the Securities Exchange Act of 
1934, as amended, that operates pursuant to Rule 301 of Regulation ATS. 
This is the same definition of an ATS as set forth in Section 1.1 of 
the CAT NMS Plan in the definition of an ``Execution Venue.'' Then, 
paragraph (a)(4) defines an ``Equity ATS'' as an ATS that executes 
transactions in NMS Stocks and/or OTC Equity Securities.
    Paragraph (a)(3) of the proposed fee schedule defines the term 
``CAT Fee'' to mean the Consolidated Audit Trail Funding Fee(s) to be 
paid by Industry Members as set forth in paragraph (b) in the proposed 
fee schedule.
    Finally, paragraph (a)(6) defines an ``Execution Venue'' as a Plan 
Participant or an ATS (excluding any such ATS that does not execute 
orders). This definition is the same substantive definition as set 
forth in Section 1.1 of the CAT NMS Plan. Paragraph (a)(5) defines an 
``Equity Execution Venue'' as an Execution Venue that trades NMS Stocks 
and/or OTC Equity Securities.
(B) Fee Schedule
    The Exchange proposes to impose the CAT Fees applicable to its 
Industry Members through paragraph (b) of the proposed fee schedule. 
Paragraph (b)(1) of the proposed fee schedule sets forth the CAT Fees 
applicable to Industry Members other than Equity ATSs. Specifically, 
paragraph (b)(1) states that the Company will assign each Industry 
Member (other than an Equity ATS) to a fee tier once every quarter, 
where such tier assignment is calculated by ranking each Industry 
Member based on its total message traffic for the three months prior to 
the quarterly tier calculation day and assigning each Industry Member 
to a tier based on that ranking and predefined Industry Member 
percentages. The Industry Members with the highest total quarterly 
message traffic will be ranked in Tier 1, and the Industry Members with 
lowest quarterly message traffic will be ranked in Tier 9. Each 
quarter, each Industry Member (other than an Equity ATS) shall pay the 
following CAT Fee corresponding to the tier assigned by the Company for 
such Industry Member for that quarter:

------------------------------------------------------------------------
                                           Percentage of
                  Tier                       industry     Quarterly  CAT
                                              members           fee
------------------------------------------------------------------------
1.......................................           0.500         101,004
2.......................................           2.500          81,153
3.......................................           2.125          57,717
4.......................................           4.625          19,965
5.......................................           3.625          12,489
6.......................................           4.000           7,680
7.......................................          17.500           1,503
8.......................................          20.125             435
9.......................................          45.000              66
------------------------------------------------------------------------

    Paragraph (b)(2) of the proposed fee schedule sets forth the CAT 
Fees applicable to Equity ATSs.\51\ These are the same fees that Plan 
Participants that trade NMS Stocks and/or OTC Equity Securities will 
pay. Specifically, paragraph (b)(2) states that the Company will assign 
each Equity ATS to a fee tier once every quarter, where such tier 
assignment is calculated by ranking each Equity Execution Venue based 
on its total market share of NMS Stocks and OTC Equity Securities for 
the three months prior to the quarterly tier calculation day and 
assigning each Equity Execution Venue to a tier based on that ranking 
and predefined Equity Execution Venue percentages. The Equity Execution 
Venues with the higher total quarterly market share will be ranked in 
Tier 1, and the Equity Execution Venues with the lower quarterly market 
share will be ranked in Tier 2. Specifically, paragraph (b)(2) states 
that, each quarter, each Equity ATS shall pay the following CAT Fee 
corresponding to the tier assigned by the Company for such Equity ATS 
for that quarter:
---------------------------------------------------------------------------

    \51\ Note that no fee schedule is provided for Execution Venue 
ATSs that execute transactions in Listed Options, as no such 
Execution Venue ATSs currently exist due trading restrictions 
related to Listed Options.

------------------------------------------------------------------------
                                           Percentage of
                                              equity      Quarterly  CAT
                  Tier                       execution          fee
                                              venues
------------------------------------------------------------------------
1.......................................           25.00          63,375
2.......................................           75.00          38,820
------------------------------------------------------------------------

(C) Timing and Manner of Payment
    Section 11.4 of the CAT NMS Plan states that the Operating 
Committee shall establish a system for the collection of fees 
authorized under the CAT NMS Plan. The Operating Committee may include 
such collection responsibility as a function of the Plan Processor or 
another administrator. To implement the payment process to be adopted 
by the Operating Committee, paragraph (c)(1) of the proposed fee 
schedule states that the Company will provide each Industry Member with 
one invoice each quarter for its CAT Fees as determined pursuant to 
paragraph (b) of the proposed fee schedule, regardless of whether the 
Industry Member is a member of multiple self-regulatory organizations. 
Paragraph (c)(1) further states that each Industry Member will pay its 
CAT Fees to the Company via the centralized system for the collection 
of CAT Fees established by the Company in the manner prescribed by the 
Company. The Exchange will provide Industry Members with details 
regarding the manner of payment of CAT Fees by Information Memorandum.

[[Page 23360]]

    Although the exact fee collection system and processes for CAT fees 
has not yet been established, all CAT fees will be billed and collected 
centrally through the Company, via the Plan Processor or otherwise. 
Although each Plan Participant will adopt its own fee schedule 
regarding CAT Fees, no CAT Fees or portion thereof will be collected by 
the individual Plan Participants. Each Industry Member will receive 
from the Company one invoice for its applicable CAT fees, not separate 
invoices from each Plan Participant of which it is a member. The 
Industry Members will pay the CAT Fees to the Company via the 
centralized system for the collection of CAT fees established by the 
Company.\52\
---------------------------------------------------------------------------

    \52\ Section 11.4 of the CAT NMS Plan.
---------------------------------------------------------------------------

    Section 11.4 of the CAT NMS Plan also states that Plan Participants 
shall require each Industry Member to pay all applicable authorized CAT 
Fees within thirty days after receipt of an invoice or other notice 
indicating payment is due (unless a longer payment period is otherwise 
indicated). Section 11.4 further states that, if an Industry Member 
fails to pay any such fee when due, such Industry Member shall pay 
interest on the outstanding balance from such due date until such fee 
is paid at a per annum rate equal to the lesser of: (i) The Prime Rate 
plus 300 basis points; or (ii) the maximum rate permitted by applicable 
law. Therefore, in accordance with Section 11.4 of the CAT NMS Plan, 
the Exchange proposed to adopt paragraph (c)(2) of the proposed fee 
schedule. Paragraph (c)(2) of the proposed fee schedule states that 
each Industry Member shall pay CAT Fees within thirty days after 
receipt of an invoice or other notice indicating payment is due (unless 
a longer payment period is otherwise indicated). If an Industry Member 
fails to pay any such fee when due, such Industry Member shall pay 
interest on the outstanding balance from such due date until such fee 
is paid at a per annum rate equal to the lesser of: (i) The Prime Rate 
plus 300 basis points; or (ii) the maximum rate permitted by applicable 
law.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b)(5) of the Act,\53\ which require, 
among other things, that rules of the exchange must be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, and, in general, to protect 
investors and the public interest, and not designed to permit unfair 
discrimination between customers, issuers, brokers and dealer [sic], 
and Section 6(b)(4) of the Act,\54\ which requires that the rules of 
the exchange provide for the equitable allocation of reasonable dues, 
fees, and other charges among members and issuers and other persons 
using its facilities. As discussed above, the SEC approved the 
bifurcated, tiered, fixed fee funding model in the CAT NMS Plan, 
finding it was reasonable and that it equitably allocated fees among 
Plan Participants and Industry Members. The Exchange believes that the 
proposed tiered fees adopted pursuant to the funding model approved by 
the SEC in the CAT NMS Plan are reasonable, equitably allocated and not 
unfairly discriminatory.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78f(b)(5).
    \54\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that this proposal is consistent with the Act 
because it implements, interprets or clarifies the provisions of the 
Plan, and is designed to assist the Exchange and its Industry Members 
in meeting regulatory obligations pursuant to the Plan. In approving 
the Plan, the SEC noted that the Plan ``is necessary and appropriate in 
the public interest, for the protection of investors and the 
maintenance of fair and orderly markets, to remove impediments to, and 
perfect the mechanism of a national market system, or is otherwise in 
furtherance of the purposes of the Act.'' \55\ To the extent that this 
proposal implements, interprets or clarifies the Plan and applies 
specific requirements to Industry Members, the Exchange believes that 
this proposal furthers the objectives of the Plan, as identified by the 
SEC, and is therefore consistent with the Act.
---------------------------------------------------------------------------

    \55\ Approval Order at 84697.
---------------------------------------------------------------------------

    The Exchange believes that the proposed tiered fees are reasonable. 
First, the total CAT Fees to be collected would be directly associated 
with the costs of establishing and maintaining the CAT, where such 
costs include Plan Processor costs and costs related to insurance, 
third party services and the operational reserve. The CAT Fees would 
not cover Plan Participant services unrelated to the CAT. In addition, 
any surplus CAT Fees cannot be distributed to the individual Plan 
Participants; such surpluses must be used as a reserve to offset future 
fees. Given the direct relationship between the fees and the CAT costs, 
the Exchange believes that the total level of the CAT Fees is 
reasonable.
    In addition, the Exchange believes that the proposed CAT Fees are 
reasonably designed to allocate the total costs of the CAT equitably 
between and among the Plan Participants and Industry Members, and are 
therefore not unfairly discriminatory. As discussed in detail above, 
the proposed tiered fees impose comparable fees on similarly situated 
CAT Reporters. For example, those with a larger impact on the CAT 
(measured via message traffic or market share) pay higher fees, whereas 
CAT Reporters with a smaller impact pay lower fees. Correspondingly, 
the tiered structure lessens the impact on smaller CAT Reporters by 
imposing smaller fees on those CAT Reporters with less market share or 
message traffic. In addition, the funding model takes into 
consideration affiliations between CAT Reporters, imposing comparable 
fees on such affiliated entities.
    Moreover, the Exchange believes that the division of the total CAT 
costs between Industry Members and Execution Venues, and the division 
of the Execution Venue portion of total costs between Equity and 
Options Execution Venues, is reasonably designed to allocate CAT costs 
among CAT Reporters. The 75/25 division between Industry Members and 
Execution Venues maintains the greatest level of comparability across 
the funding model, keeping in view that comparability should consider 
affiliations among or between CAT Reporters (e.g., firms with multiple 
Industry Members or exchange licenses). Similarly, the 75/25 division 
between Equity and Options Execution Venues maintains elasticity across 
the funding model as well as the greatest level of fee equitability and 
comparability based on the current number of Equity and Options 
Execution Venues.
    Finally, the Exchange believes that the proposed fees are 
reasonable because they would provide ease of calculation, ease of 
billing and other administrative functions, and predictability of a 
fixed fee. Such factors are crucial to estimating a reliable revenue 
stream for the Company and for permitting CAT Reporters to reasonably 
predict their payment obligations for budgeting purposes.

B. Self-Regulatory Organization's Statement of Burden on Competition

    Section 6(b)(8) of the Act \56\ require [sic] that the rules of the 
Exchange not impose any burden on competition that is not necessary or 
appropriate. The Exchange does not believe that the proposed rule 
change will result in any burden on competition that is not

[[Page 23361]]

necessary or appropriate in furtherance of the purposes of the Act. The 
Exchange notes that the proposed rule change implements provisions of 
the CAT NMS Plan approved by the Commission, and is designed to assist 
the Exchange in meeting its regulatory obligations pursuant to the 
Plan. Similarly, all national securities exchanges and FINRA are 
proposing this proposed fee schedule to implement the requirements of 
the CAT NMS Plan. Therefore, this is not a competitive fee filing and, 
therefore, it does not raise competition issues between and among the 
exchanges and FINRA.
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Moreover, as previously described, the Exchange believes that the 
proposed rule change fairly and equitably allocates costs among CAT 
Reporters. In particular, the proposed fee schedule is structured to 
impose comparable fees on similarly situated CAT Reporters, and lessen 
the impact on smaller CAT Reporters. CAT Reporters with similar levels 
of CAT activity will pay similar fees. For example, Industry Members 
(other than Execution Venue ATSs) with higher levels of message traffic 
will pay higher fees, and those with lower levels of message traffic 
will pay lower fees. Similarly, Execution Venue ATSs and other 
Execution Venues with larger market share will pay higher fees, and 
those with lower levels of market share will pay lower fees. Therefore, 
given that there is generally a relationship between message traffic 
and market share to the CAT Reporter's size, smaller CAT Reporters 
generally pay less than larger CAT Reporters. Accordingly, the Exchange 
does not believe that the CAT Fees would have a disproportionate effect 
on smaller or larger CAT Reporters. In addition, ATSs and exchanges 
will pay the same fees based on market share. Therefore, the Exchange 
does not believe that the fees will impose any burden on the 
competition between ATSs and exchanges. Accordingly, the Exchange 
believes that the proposed fees will minimize the potential for adverse 
effects on competition between CAT Reporters in the market.
    Furthermore, the tiered, fixed fee funding model limits the 
disincentives to providing liquidity to the market. Therefore, the 
proposed fees are structured to limit burdens on competitive quoting 
and other liquidity provision in the market.

C. Self-Regulatory Organization's Statement on Comments Regarding the 
Proposed Rule Changes Received From Members, Participants or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Changes and Timing for 
Commission Action

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A)(ii) of the Act \57\ and subparagraph(f)(2) of Rule 
19b-4 thereunder \58\ because it establishes or changes a due, fee or 
other charge imposed by the Exchange.
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    \57\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \58\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CHX-2017-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CHX-2017-08. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CHX-2017-08, and should be 
submitted on or before June 12, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\59\
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    \59\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10295 Filed 5-19-17; 8:45 am]
 BILLING CODE 8011-01-P