[Federal Register Volume 82, Number 117 (Tuesday, June 20, 2017)]
[Notices]
[Pages 28180-28198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-12771]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80930; File No. 4-698]


Joint Industry Plan; Notice of Filing and Immediate Effectiveness 
of Amendment No. 2 to the National Market System Plan Governing the 
Consolidated Audit Trail by Bats BYX Exchange, Inc., Bats BZX Exchange, 
Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options 
Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options 
Exchange, Incorporated, Chicago Stock Exchange, Inc., Financial 
Industry Regulatory Authority, Inc., Investors' Exchange LLC, Miami 
International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, 
Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, NASDAQ PHLX 
LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE 
Arca, Inc., NYSE MKT LLC and NYSE National, Inc.

June 14, 2017.

I. Introduction

    On May 9, 2017, the Operating Committee for CAT NMS, LLC (the 
``Company''), on behalf of the following parties to the National Market 
System Plan Governing the Consolidated Audit Trail (the ``CAT NMS 
Plan'' or ``Plan''): \1\ Bats BYX Exchange, Inc., Bats BZX Exchange, 
Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options 
Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options 
Exchange, Incorporated, Chicago Stock Exchange, Inc., Financial 
Industry Regulatory Authority, Inc., Investors' Exchange LLC, Miami 
International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, 
Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, NASDAQ PHLX 
LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE 
Arca, Inc., NYSE MKT LLC and NYSE National, Inc. (collectively, the 
``Participants,'' ``self-regulatory organizations'' or ``SROs'') filed 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
pursuant to Section 11A(a)(3) of the Securities Exchange Act of 1934 
(``Exchange Act'') \2\ and Rule 608 thereunder,\3\ a proposal to amend 
the Plan (``Amendment No. 2'').\4\ The proposed amendment would add a 
fee schedule to a new Exhibit B of the Plan which sets forth the CAT 
fees to be paid by the Participants. A copy of proposed Exhibit B to 
the CAT NMS Plan is attached as Appendix A hereto. The Participants 
have also included, and as attached hereto, an Appendix B containing 
two charts, one listing the current Equity Execution Venues, each with 
its rank and tier, and one listing the current Options Execution 
Venues, each with its rank and tier. The Commission is publishing this 
notice to solicit comments from interested persons on Amendment No. 
2.\5\
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    \1\ On February 27, 2015, BATS-Y Exchange, Inc. (n/k/a Bats BYX 
Exchange, Inc.), BATS Exchange, Inc. (n/k/a Bats BZX Exchange, 
Inc.), BOX Options Exchange LLC, C2 Options Exchange, Incorporated, 
Chicago Board Options Exchange, Incorporated, Chicago Stock 
Exchange, Inc., EDGA Exchange, Inc. (n/k/a Bats EDGA Exchange, 
Inc.), EDGX Exchange, Inc. (n/k/a Bats EDGX Exchange, Inc.), 
Financial Industry Regulatory Authority, Inc., International 
Securities Exchange, LLC (n/k/a Nasdaq ISE LLC), ISE Gemini, LLC (n/
k/a Nasdaq GEMX, LLC), Miami International Securities Exchange LLC, 
NASDAQ OMX BX, Inc. (n/k/a NASDAQ BX, Inc.), NASDAQ OMX PHLX LLC (n/
k/a NASDAQ PHLX LLC), The NASDAQ Stock Market LLC, National Stock 
Exchange, Inc. (n/k/a NYSE National, Inc.), New York Stock Exchange 
LLC, NYSE MKT LLC, and NYSE Arca, Inc. filed with the Commission, 
pursuant to Section 11A of the Exchange Act and Rule 608 of 
Regulation NMS thereunder, the CAT NMS Plan. 15 U.S.C. 78k-1; 17 CFR 
242.608. The Plan was published for comment in the Federal Register 
on May 17, 2016, and approved by the Commission, as modified, on 
November 15, 2016. See Securities Exchange Act Release Nos. 77724 
(April 27, 2016), 81 FR 30614 (May 17, 2016); 79318 (November 15, 
2016), 81 FR 84696 (November 23, 2016). On January 30, 2017, the 
Commission noticed for immediate effectiveness an amendment to the 
Plan to add MIAX PEARL, LLC as a Participant. See Securities 
Exchange Act Release No. 79898, 82 FR 9250 (February 3, 2017).
    \2\ 15 U.S.C 78k-1(a)(3).
    \3\ 17 CFR 242.608.
    \4\ See Letter from Michael Simon, CAT NMS Plan Operating 
Committee Chair, to Brent J. Fields, Secretary, Commission, dated 
May 8, 2017 (``Transmittal Letter'').
    \5\ 17 CFR 242.608.
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II. Description of the Plan

    Set forth in this Section II is the statement of the purpose and 
summary of Amendment No. 2, along with the information required by Rule 
608(a)(4) and (5) under the Exchange Act,\6\ prepared and submitted by 
the Participants to the Commission.\7\
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    \6\ See 17 CFR 242.608(a)(4) and (a)(5).
    \7\ See Transmittal Letter, supra note 4.
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A. Description of the Amendments to the CAT NMS Plan

(1) Executive Summary
    The following provides an executive summary of the CAT funding 
model approved by the Operating Committee, as well as Participants' 
obligations related to the payment of CAT Fees calculated pursuant to 
the CAT funding model. A detailed description of the CAT funding model 
and the CAT Fees follows this executive summary.
     CAT Costs. The CAT funding model is designed to establish 
CAT-specific

[[Page 28181]]

fees to collectively recover the costs of building and operating the 
CAT from all CAT Reporters, including Industry Members and 
Participants. The overall CAT costs for the calculation of the CAT Fees 
in this fee filing are comprised of Plan Processor CAT costs and non-
Plan Processor CAT costs incurred, and estimated to be incurred, from 
November 21, 2016 through November 21, 2017. (See Section A(2)(E) 
below)
     Bifurcated Funding Model. The CAT NMS Plan requires a 
bifurcated funding model, where costs associated with building and 
operating the CAT would be borne by (1) Participants and Industry 
Members that are Execution Venues for Eligible Securities through fixed 
tier fees based on market share, and (2) Industry Members (other than 
alternative trading systems (``ATSs'') that execute transactions in 
Eligible Securities (``Execution Venue ATSs'')) through fixed tier fees 
based on message traffic for Eligible Securities. (See Section A(2) 
below)
     Industry Member Fees. Each Industry Member (other than 
Execution Venue ATSs) will be placed into one of nine tiers of fixed 
fees, based on ``message traffic'' in Eligible Securities for a defined 
period (as discussed below). Prior to the start of CAT reporting, 
``message traffic'' will be comprised of historical equity and equity 
options orders, cancels and quotes provided by each exchange and FINRA 
over the previous three months. After an Industry Member begins 
reporting to the CAT, ``message traffic'' will be calculated based on 
the Industry Member's Reportable Events reported to the CAT. Industry 
Members with lower levels of message traffic will pay a lower fee and 
Industry Members with higher levels of message traffic will pay a 
higher fee. (See Section A(2)(B) below)
     Execution Venue Fees. Each Equity Execution Venue will be 
placed in one of two tiers of fixed fees based on market share, and 
each Options Execution Venue will be placed in one of two tiers of 
fixed fees based on market share. Equity Execution Venue market share 
will be determined by calculating each Equity Execution Venue's 
proportion of the total volume of NMS Stock and OTC Equity shares 
reported by all Equity Execution Venues during the relevant time 
period. Similarly, market share for Options Execution Venues will be 
determined by calculating each Options Execution Venue's proportion of 
the total volume of Listed Options contracts reported by all Options 
Execution Venues during the relevant time period. Equity Execution 
Venues with a larger market share will pay a larger CAT Fee than Equity 
Execution Venues with a smaller market share. Similarly, Options 
Execution Venues with a larger market share will pay a larger CAT Fee 
than Options Execution Venues with a smaller market share. (See Section 
A(2)(C) below)
     Cost Allocation. For the reasons discussed below, in 
designing the model, the Operating Committee determined that 75 percent 
of total costs recovered would be allocated to Industry Members (other 
than Execution Venue ATSs) and 25 percent would be allocated to 
Execution Venues. In addition, the Operating Committee determined to 
allocate 75 percent of Execution Venue costs recovered to Equity 
Execution Venues and 25 percent to Options Execution Venues. (See 
Section A(2)(D) below)
     Comparability of Fees. The CAT funding model requires that 
the CAT Fees charged to the CAT Reporters with the most CAT-related 
activity (measured by market share and/or message traffic, as 
applicable) are generally comparable (where, for these comparability 
purposes, the tiered fee structure takes into consideration 
affiliations between or among CAT Reporters, whether Execution Venues 
and/or Industry Members). (See Section A(2)(F) below)
     Fee Schedule. The quarterly CAT Fees for each tier for 
Participants are set forth in the two fee schedules in proposed Exhibit 
B to the CAT NMS Plan, one for Execution Venues for NMS Stocks and OTC 
Equity Securities and one for Execution Venues for Listed Options. (See 
Section A(3) below)
(2) Description of the CAT Funding Model
    Article XI of the CAT NMS Plan requires the Operating Committee to 
approve the operating budget, including projected costs of developing 
and operating the CAT for the upcoming year. As set forth in Article XI 
of the CAT NMS Plan, the CAT NMS Plan requires a bifurcated funding 
model, where costs associated with building and operating the Central 
Repository would be borne by (1) Participants and Industry Members that 
are Execution Venues through fixed tier fees based on market share, and 
(2) Industry Members (other than Execution Venue ATSs) through fixed 
tier fees based on message traffic. In its order approving the CAT NMS 
Plan, the Commission determined that the proposed funding model was 
``reasonable'' \8\ and ``reflects a reasonable exercise of the 
Participants' funding authority to recover the Participants' costs 
related to the CAT.'' \9\
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    \8\ Approval Order at 84796.
    \9\ 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 
Participants and Industry Members.'' \10\ The Commission further noted 
the following:
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    \10\ Id. at 84795.

    The Commission believes that the proposed funding model reflects 
a reasonable exercise of the Participants' funding authority to 
recover the Participants' costs related to the CAT. The CAT is a 
regulatory facility jointly owned by the Participants and . . . the 
Exchange Act specifically permits the Participants to charge their 
members fees to fund their self-regulatory obligations. The 
Commission further believes that the proposed funding model is 
designed to impose fees reasonably related to the Participants' 
self-regulatory obligations because the fees would be directly 
associated with the costs of establishing and maintaining the CAT, 
and not unrelated SRO services.\11\
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    \11\ Id. at 84794.

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

    In addition, as discussed in Appendix C of the CAT NMS Plan, the 
Operating Committee considered the advantages and disadvantages of a 
variety of alternative funding and cost allocation models before 
selecting the proposed model.\12\ After analyzing the various 
alternatives, the Operating Committee determined that the proposed 
tiered, fixed fee funding model provides a variety of advantages in 
comparison to the alternatives. First, the fixed fee model, as opposed 
to a variable fee model, provides transparency, ease of calculation, 
ease of billing and other administrative functions, and predictability 
of a fixed fee. Such factors are crucial to estimating a reliable 
revenue stream for the Company and for permitting CAT Reporters to 
reasonably predict their payment obligations for budgeting 
purposes.\13\ Additionally, a strictly variable or metered funding 
model based on message volume would

[[Page 28182]]

be far more likely to affect market behavior and place an inappropriate 
burden on competition. Moreover, as the SEC noted in approving the CAT 
NMS Plan, ``[t]he Participants also have offered a reasonable basis for 
establishing a funding model based on broad tiers, in that it be may be 
easier to implement.'' \14\
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    \12\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
    \13\ In choosing a tiered fee structure, the self-regulatory 
organizations concluded that the variety of benefits offered by a 
tiered fee structure, discussed above, outweighed the fact that 
Industry Members in any particular tier would pay different rates 
per message traffic order event (e.g., an Industry Member with the 
largest amount of message traffic in one tier would pay a smaller 
amount per order event than an Industry Member in the same tier with 
the least amount of message traffic). Such variation is the natural 
result of a tiered fee structure.
    \14\ Approval Order at 84796.
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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.\15\ The self-regulatory 
organizations considered several approaches to developing a tiered 
model, including defining fee tiers based on such factors as size of 
firm, message traffic or trading dollar volume. After analyzing the 
alternatives, it was concluded that the tiering should be based on the 
relative impact of CAT Reporters on the CAT System.
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    \15\ 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.\16\ The fees to be assessed at 
each tier are calculated so as to recoup a proportion of costs 
appropriate to the message traffic or market share (as applicable) from 
CAT Reporters in each tier. Therefore, Industry Members generating the 
most message traffic will be in the higher tiers, and therefore be 
charged a higher fee. Industry Members with lower levels of message 
traffic will be in lower tiers and will be assessed a smaller fee for 
the CAT.\17\ Correspondingly, Execution Venues with the highest market 
share will be in the top tier, and therefore will be charged a higher 
fee. Execution Venues with a lower market share will be in the lower 
tier and will be assessed a smaller fee for the CAT.\18\
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    \16\ Approval Order at 85005.
    \17\ Id.
    \18\ Id.
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    The Commission also noted in approving the CAT NMS Plan that 
``[t]he Participants have offered a credible justification for using 
different criteria to charge Execution Venues (market share) and 
Industry Members (message traffic)'' \19\ in the CAT funding model. 
While there are multiple factors that contribute to the cost of 
building, maintaining and using the CAT, processing and storage of 
incoming message traffic is one of the most significant cost drivers 
for the CAT.\20\ Thus, the CAT NMS Plan provides that the fees payable 
by Industry Members (other than Execution Venue ATSs) will be based on 
the message traffic generated by such Industry Member.\21\
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    \19\ Id. at 84796.
    \20\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85005.
    \21\ Section 11.3(b) of the CAT NMS Plan.
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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.\22\ 
Because most Participant message traffic consists of quotations, and 
Participants usually disseminate quotations in all instruments they 
trade, regardless of execution volume, Execution Venues that are 
Participants generally disseminate similar amounts of message traffic. 
Accordingly, basing fees for Execution Venues on message traffic would 
not provide the same degree of differentiation among Execution Venues 
that it does among Industry Members (other than Execution Venue ATSs). 
In contrast, execution volume more accurately delineates the different 
levels of trading activity of Execution Venues.\23\
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    \22\ Section 11.2(c) of the CAT NMS Plan.
    \23\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85005.
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    The CAT NMS Plan's funding model also is structured to avoid a 
``reduction in market quality.'' \24\ The tiered, fixed fee funding 
model is designed to limit the disincentives to providing liquidity to 
the market. For example, the Participants expect that a firm that had a 
large volume of quotes would likely be categorized in one of the upper 
tiers, and would not be assessed a fee for this traffic directly as 
they would under a more directly metered model. In contrast, strictly 
variable or metered funding models based on message volume were far 
more likely to affect market behavior. In approving the CAT NMS Plan, 
the SEC stated that ``[t]he Participants also offered a reasonable 
basis for establishing a funding model based on broad tiers, in that it 
may be . . . less likely to have an incremental deterrent effect on 
liquidity provision.'' \25\
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    \24\ Section 11.2(e) of the CAT NMS Plan.
    \25\ 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 Participants. First, the Company will be operated on a 
``break-even'' basis, with fees imposed to cover costs and an 
appropriate reserve. Any surpluses will be treated as an operational 
reserve to offset future fees and will not be distributed to the 
Participants as profits.\26\ To ensure that the Participants' operation 
of the CAT will not contribute to the funding of their other 
operations, Section 11.1(c) of the CAT NMS Plan specifically states 
that ``[a]ny surplus of the Company's revenues over its expenses shall 
be treated as an operational reserve to offset future fees.'' In 
addition, as set forth in Article VIII of the CAT NMS Plan, the Company 
``intends to operate in a manner such that it qualifies as a `business 
league' within the meaning of Section 501(c)(6) of the [Internal 
Revenue] Code.'' To qualify as a business league, an organization must 
``not [be] organized for profit and no part of the net earnings of [the 
organization can] inure[] to the benefit of any private shareholder or 
individual.'' \27\ As the SEC stated when approving the CAT NMS Plan, 
``the Commission believes that the Company's application for Section 
501(c)(6) business league status addresses issues raised by commenters 
about the Plan's proposed allocation of profit and loss by mitigating 
concerns that the Company's earnings could be used to benefit 
individual Participants.'' \28\
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    \26\ Id. at 84792.
    \27\ 26 U.S.C. 501(c)(6).
    \28\ Approval Order at 84793.
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    Finally, by adopting a CAT-specific fee, the Participants will be 
fully transparent regarding the costs of the CAT. Charging a general 
regulatory fee, which would be used to cover CAT costs as well as other 
regulatory costs, would be less transparent than the selected approach 
of charging a fee designated to cover CAT costs only.
    A full description of the funding model is set forth below. This 
description includes the framework for the funding model as set forth 
in the CAT NMS Plan, as well as the details as to how the funding model 
will be

[[Page 28183]]

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

[[Page 28184]]

stability and elasticity within the funding model, allowing the funding 
model to respond to changes in either the total number of Industry 
Members or the total level of message traffic.
    The following chart illustrates the breakdown of nine Industry 
Member tiers across the monthly average of total equity and equity 
options orders, cancels and quotes in Q1 2016 and identifies relative 
gaps across varying levels of Industry Member message traffic as well 
as message traffic thresholds between the largest of Industry Member 
message traffic gaps. The Operating Committee referenced similar 
distribution illustrations to determine the appropriate division of 
Industry Member percentages in each tier by considering the grouping of 
firms with similar levels of message traffic and seeking to identify 
relative breakpoints in the message traffic between such groupings. In 
reviewing the chart and its corresponding table, note that while these 
distribution illustrations were referenced to help differentiate 
between Industry Member tiers, the proposed funding model is directly 
driven, not by fixed message traffic thresholds, but rather by fixed 
percentages of Industry Members across tiers to account for fluctuating 
levels of message traffic across time and to provide for the financial 
stability of the CAT by ensuring that the funding model will recover 
the required amounts regardless of changes in the number of Industry 
Members or the amount of message traffic. Actual messages in any tier 
will vary based on the actual traffic in a given measurement period, as 
well as the number of firms included in the measurement period. The 
Industry Member Percentages and Industry Member Recovery Allocation for 
each tier will remain fixed with each Industry Member's tier to be 
reassigned periodically, as described below in Section A(2)(H).
[GRAPHIC] [TIFF OMITTED] TN20JN17.000


------------------------------------------------------------------------
                                                        Monthly average
                                                        message traffic
                                                          per industry
                 Industry member tier                   member (orders,
                                                           quotes and
                                                            cancels)
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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
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    Based on the above analysis, the Operating Committee approved the 
following Industry Member Percentages and Recovery Allocations:

[[Page 28185]]



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

    For the purposes of creating these tiers based on message traffic, 
the Operating Committee determined to define the term ``message 
traffic'' separately for the period before the commencement of CAT 
reporting and for the period after the start of CAT reporting. The 
different definition for message traffic is necessary as there will be 
no Reportable Events as defined in the Plan, prior to the commencement 
of CAT reporting. Accordingly, prior to the start of CAT reporting, 
``message traffic'' will be comprised of historical equity and equity 
options orders, cancels and quotes provided by each exchange and FINRA 
over the previous three months.\29\ Prior to the start of CAT 
reporting, orders would be comprised of the total number of equity and 
equity options orders received and originated by a member of an 
exchange or FINRA over the previous three-month period, including 
principal orders, cancel/replace orders, market maker orders originated 
by a member of an exchange, and reserve (iceberg) orders as well as 
order routes and executions originated by a member of FINRA, and 
excluding order rejects and implied orders.\30\ In addition, prior to 
the start of CAT reporting, cancels would be comprised of the total 
number of equity and equity option cancels received and originated by a 
member of an exchange or FINRA over a three-month period, excluding 
order modifications (e.g., order updates, order splits, partial 
cancels). Furthermore, prior to the start of CAT reporting, quotes 
would be comprised of information readily available to the exchanges 
and FINRA, such as the total number of historical equity and equity 
options quotes received and originated by a member of an exchange or 
FINRA over the prior three-month period.
---------------------------------------------------------------------------

    \29\ The SEC approved exemptive relief permitting Options Market 
Maker quotes to be reported to the Central Repository by the 
relevant Options Exchange in lieu of requiring that such reporting 
be done by both the Options Exchange and the Options Market Maker, 
as required by Rule 613 of Regulation NMS. See Securities Exchange 
Act Release No. 77265 (Mar. 1, 2017 [sic], 81 FR 11856 (Mar. 7, 
2016). This exemption applies to Options Market Maker quotes for CAT 
reporting purposes only. Therefore, notwithstanding the reporting 
exemption provided for Options Market Maker quotes, Options Market 
Maker quotes will be included in the calculation of total message 
traffic for Options Market Makers for purposes of tiering under the 
CAT funding model both prior to CAT reporting and once CAT reporting 
commences.
    \30\ Consequently, firms that do not have ``message traffic'' 
reported to an exchange or OATS before they are reporting to the CAT 
would not be subject to a fee until they begin to report information 
to CAT.
---------------------------------------------------------------------------

    After an Industry Member begins reporting to the CAT, ``message 
traffic'' will be calculated based on the Industry Member's Reportable 
Events reported to the CAT as will be defined in the Technical 
Specifications.\31\
---------------------------------------------------------------------------

    \31\ If an Industry Member (other than an Execution Venue ATS) 
has no orders, cancels or quotes prior to the commencement of CAT 
Reporting, or no Reportable Events after CAT reporting commences, 
then the Industry Member would not have a CAT fee obligation.
---------------------------------------------------------------------------

    The Operating Committee has determined to calculate fee tiers every 
three months, on a calendar quarter basis, based on message traffic 
from the prior three months. Based on its analysis of historical data, 
the Operating Committee believes that calculating tiers based on three 
months of data will provide the best balance between reflecting changes 
in activity by Industry Members while still providing predictability in 
the tiering for Industry Members. Because fee tiers will be calculated 
based on message traffic from the prior three months, the Operating 
Committee will begin calculating message traffic based on an Industry 
Member's Reportable Events reported to the CAT once the Industry Member 
has been reporting to the CAT for three months. Prior to that, fee 
tiers will be calculated as discussed above with regard to the period 
prior to CAT reporting.
(C) Execution Venue Tiering
    Under Section 11.3(a) of the CAT NMS Plan, the Operating Committee 
is required to establish fixed fees payable by Execution Venues. 
Section 1.1 of the CAT NMS Plan defines an Execution Venue as ``a 
Participant or an alternative trading system (``ATS'') (as defined in 
Rule 300 of Regulation ATS) that operates pursuant to Rule 301 of 
Regulation ATS (excluding any such ATS that does not execute orders).'' 
\32\
---------------------------------------------------------------------------

    \32\ Although FINRA does not operate an execution venue, because 
it is a Participant, it is considered an ``Execution Venue'' under 
the Plan for purposes of determining fees.
---------------------------------------------------------------------------

    The Participants determined that ATSs should be included within the 
definition of Execution Venue. Given the similarity between the 
activity of exchanges and ATSs, both of which meet the definition of an 
``exchange'' as set forth in the Exchange Act and the fact that the 
similar trading models would have similar anticipated burdens on the 
CAT, the Participants determined that ATSs should be treated in the 
same manner as the exchanges for the purposes of determining the level 
of fees associated with the CAT.\33\
---------------------------------------------------------------------------

    \33\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85005.
---------------------------------------------------------------------------

    Given the differences between Execution Venues that trade NMS 
Stocks and/or OTC Equity Securities and Execution Venues that trade 
Listed Options, Section 11.3(a) addresses Execution Venues that trade 
NMS Stocks and/or OTC Equity Securities separately from Execution 
Venues that trade Listed Options. Equity and Options Execution Venues 
are treated separately for two reasons. First, the differing quoting 
behavior of Equity and Options Execution Venues makes comparison of 
activity between Execution Venues difficult. Second, Execution Venue 
tiers are calculated based on market share of share volume, and it is 
therefore difficult to compare market share between asset classes 
(i.e., equity shares versus options contracts).

[[Page 28186]]

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

----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of
                                                                      Equity       Percentage of   Percentage of
                   Equity Execution Venue tier                       Execution       Execution    total recovery
                                                                      Venues      Venue recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           25.00           26.00            6.50
Tier 2..........................................................           75.00           49.00           12.25
                                                                 -----------------------------------------------
    Total.......................................................             100              75           18.75
----------------------------------------------------------------------------------------------------------------


[[Page 28187]]

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

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

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

----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of
                                                                      Options      Percentage of   Percentage of
                  Options Execution Venue tier                       Execution       Execution    total recovery
                                                                      Venues      Venue recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           20.00            5.00
Tier 2..........................................................           25.00            5.00            1.25
                                                                 -----------------------------------------------
    Total.......................................................             100              25            6.25
----------------------------------------------------------------------------------------------------------------

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

------------------------------------------------------------------------
                                                          Options market
              Options Execution Venue tier                share of share
                                                            volume (%)
------------------------------------------------------------------------
Tier 1..................................................             >=1
Tier 2..................................................              <1
------------------------------------------------------------------------


[[Page 28188]]

(III) Market Share/Tier Assignments
    The Operating Committee determined that, prior to the start of CAT 
reporting, market share for Execution Venues would be sourced from 
publicly-available market data. Options and equity volumes for 
Participants will be sourced from market data made publicly available 
by Bats while Execution Venue ATS volumes will be sourced from market 
data made publicly available by FINRA. Set forth in Appendix B to this 
letter are two charts, one listing the current Equity Execution Venues, 
each with its rank and tier, and one listing the current Options 
Execution Venues, each with its rank and tier.
    After the commencement of CAT reporting, market share for Execution 
Venues will be sourced from data reported to the CAT. Equity Execution 
Venue market share will be determined by calculating each Equity 
Execution Venue's proportion of the total volume of NMS Stock and OTC 
Equity shares reported by all Equity Execution Venues during the 
relevant time period. Similarly, market share for Options Execution 
Venues will be determined by calculating each Options Execution Venue's 
proportion of the total volume of Listed Options contracts reported by 
all Options Execution Venues during the relevant time period.
    The Operating Committee has determined to calculate fee tiers for 
Execution Venues every three months based on market share from the 
prior three months. Based on its analysis of historical data, the 
Operating Committee believes calculating tiers based on three months of 
data will provide the best balance between reflecting changes in 
activity by Execution Venues while still providing predictability in 
the tiering for Execution Venues.
(D) Allocation of Costs
    In addition to the funding principles discussed above, including 
comparability of fees, Section 11.1(c) of the CAT NMS Plan also 
requires expenses to be fairly and reasonably shared among the 
Participants and Industry Members. Accordingly, in developing the 
proposed fee schedules pursuant to the funding model, the Operating 
Committee calculated how the CAT costs would be allocated between 
Industry Members and Execution Venues, and how the portion of CAT costs 
allocated to Execution Venues would be allocated between Equity 
Execution Venues and Options Execution Venues. These determinations are 
described below.
(I) Allocation Between Industry Members and Execution Venues
    In determining the cost allocation between Industry Members (other 
than Execution Venue ATSs) and Execution Venues, the Operating 
Committee analyzed a range of possible splits for revenue recovered 
from such Industry Members and Execution Venues. Based on this 
analysis, the Operating Committee determined that 75 percent of total 
costs recovered would be allocated to Industry Members (other than 
Execution Venue ATSs) and 25 percent would be allocated to Execution 
Venues. The Operating Committee determined that this 75/25 division 
maintained the greatest level of comparability across the funding 
model, keeping in view that comparability should consider affiliations 
among or between CAT Reporters (e.g., firms with multiple Industry 
Members and/or exchange licenses). For example, the cost allocation 
establishes fees for the largest Industry Members (i.e., those Industry 
Members in Tiers 1, 2 and 3) that are comparable to the largest Equity 
Execution Venues and Options Execution Venues (i.e., those Execution 
Venues in Tier 1). In addition, the cost allocation establishes fees 
for Execution Venue complexes that are comparable to those of Industry 
Member complexes. For example, when analyzing alternative allocations, 
other possible allocations led to much higher fees for larger Industry 
Members than for larger Execution Venues or vice versa, and/or led to 
much higher fees for Industry Member complexes than Execution Venue 
complexes or vice versa.
    Furthermore, the allocation of total CAT costs recovered recognizes 
the difference in the number of CAT Reporters that are Industry Members 
versus CAT Reporters that are Execution Venues. Specifically, the cost 
allocation takes into consideration that there are approximately 25 
times more Industry Members expected to report to the CAT than 
Execution Venues (e.g., an estimated 1,630 Industry Members versus 70 
Execution Venues as of January 2017).
(II) Allocation Between Equity Execution Venues and Options Execution 
Venues
    The Operating Committee also analyzed how the portion of CAT costs 
allocated to Execution Venues would be allocated between Equity 
Execution Venues and Options Execution Venues. In considering this 
allocation of costs, the Operating Committee analyzed a range of 
alternative splits for revenue recovered between Equity and Options 
Execution Venues, including a 70/30, 67/33, 65/35, 50/50 and 25/75 
split. Based on this analysis, the Operating Committee determined to 
allocate 75 percent of Execution Venue costs recovered to Equity 
Execution Venues and 25 percent to Options Execution Venues. The 
Operating Committee determined that a 75/25 division between Equity and 
Options Execution Venues maintained elasticity across the funding model 
as well the greatest level of fee equitability and comparability based 
on the current number of Equity and Options Execution Venues. For 
example, the allocation establishes fees for the larger Equity 
Execution Venues that are comparable to the larger Options Execution 
Venues, and fees for the smaller Equity Execution Venues that are 
comparable to the smaller Options Execution Venues. In addition to fee 
comparability between Equity Execution Venues and Options Execution 
Venues, the allocation also establishes equitability between larger 
(Tier 1) and smaller (Tier 2) Execution Venues based upon the level of 
market share. Furthermore, the allocation is intended to reflect the 
relative levels of current equity and options order events.
(E) Fee Levels
    The Operating Committee determined to establish a CAT-specific fee 
to collectively recover the costs of building and operating the CAT. 
Accordingly, under the funding model, the sum of the CAT Fees is 
designed to recover the total cost of the CAT. The Operating Committee 
has determined overall CAT costs to be comprised of Plan Processor 
costs and non-Plan Processor costs, which are estimated to be 
$50,700,000 in total for the year beginning November 21, 2016.\34\
---------------------------------------------------------------------------

    \34\ It is anticipated that CAT-related costs incurred prior to 
November 21, 2016 will be addressed via a separate filing.
---------------------------------------------------------------------------

    The Plan Processor costs relate to costs incurred by the Plan 
Processor and consist of the Plan Processor's current estimates of 
average yearly ongoing costs, including development cost, which total 
$37,500,000. This amount is based upon the fees due to the Plan 
Processor pursuant to the agreement with the Plan Processor.
    The non-Plan Processor estimated costs incurred and to be incurred 
by the Company through November 21, 2017 consist of three categories of 
costs. The first category of such costs are third party support costs, 
which include historic legal fees, consulting fees and audit fees from 
November 21, 2016 until the date of filing as well as estimated third 
party support costs for the rest of

[[Page 28189]]

the year. These amount to an estimated $5,200,000. The second category 
of non-Plan Processor costs are estimated insurance costs for the year. 
Based on discussions with potential insurance providers, assuming $2-5 
million insurance premium on $100 million in coverage, the Company has 
received an estimate of $3,000,000 for the annual cost. The final cost 
figures will be determined following receipt of final underwriter 
quotes. The third category of non-Plan Processor costs is the 
operational reserve, which is comprised of three months of ongoing Plan 
Processor costs ($9,375,000), third party support costs ($1,300,000) 
and insurance costs ($750,000). The Operating Committee aims to 
accumulate the necessary funds for the establishment of the three-month 
operating reserve for the Company through the CAT Fees charged to CAT 
Reporters for the year. On an ongoing basis, the Operating Committee 
will account for any potential need for the replenishment of the 
operating reserve or other changes to total cost during its annual 
budgeting process. The following table summarizes the Plan Processor 
and non-Plan Processor cost components which comprise the total CAT 
costs of $50,700,000.

------------------------------------------------------------------------
         Cost category                Cost component          Amount
------------------------------------------------------------------------
Plan Processor.................  Operational Costs......     $37,500,000
                                 Third Party Support           5,200,000
                                  Costs.
Non-Plan Processor.............  Operational Reserve....    35 5,000,000
                                 Insurance Costs........       3,000,000
                                                         ---------------
    Estimated Total............  .......................      50,700,000
------------------------------------------------------------------------

    Based on the estimated costs and the calculations for the funding 
model described above, the Operating Committee determined to impose the 
following fees: \36\
---------------------------------------------------------------------------

    \35\ This $5,000,000 represents the gradual accumulation of the 
funds for a target operating reserve of $11,425,000.
    \36\ Note that all monthly, quarterly and annual CAT Fees have 
been rounded to the nearest dollar.
    \37\ This column represents the approximate total CAT Fees paid 
each year by each Industry Member (other than Execution Venue ATSs) 
(i.e., ``CAT Fees Paid Annually'' = ``Monthly CAT Fee'' x 12 
months).
---------------------------------------------------------------------------

    For Industry Members (other than Execution Venue ATSs):

----------------------------------------------------------------------------------------------------------------
                                                                                                   CAT fees paid
                              Tier                                  Monthly CAT    Quarterly CAT    annually 37
                                                                        fee             fee
----------------------------------------------------------------------------------------------------------------
1...............................................................         $33,668        $101,004        $404,016
2...............................................................          27,051          81,153         324,612
3...............................................................          19,239          57,717         230,868
4...............................................................           6,655          19,965          79,860
5...............................................................           4,163          12,489          49,956
6...............................................................           2,560           7,680          30,720
7...............................................................             501           1,503           6,012
8...............................................................             145             435           1,740
9...............................................................              22              66             264
----------------------------------------------------------------------------------------------------------------

    For Execution Venues for NMS Stocks and OTC Equity Securities:
---------------------------------------------------------------------------

    \38\ This column represents the approximate total CAT Fees paid 
each year by each Execution Venue for NMS Stocks and OTC Equity 
Securities (i.e., ``CAT Fees Paid Annually'' = ``Monthly CAT Fee'' x 
12 months).

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

    For Execution Venues for Listed Options:
---------------------------------------------------------------------------

    \39\ This column represents the approximate total CAT Fees paid 
each year by each Execution Venue for Listed Options (i.e., ``CAT 
Fees Paid Annually'' = ``Monthly CAT Fee'' x 12 months).

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

    As noted above, the fees set forth in the tables reflect the 
Operating Committee's decision to ensure comparable fees between 
Execution Venues and Industry Members. The fees of the top tiers for 
Industry Members

[[Page 28190]]

(other than Execution Venue ATSs) are not identical to the top tier for 
Execution Venues, however, because the Operating Committee also 
determined that the fees for Execution Venue complexes should be 
comparable to those of Industry Member complexes. The difference in the 
fees reflects this decision to recognize affiliations.
    The Operating Committee has calculated the schedule of effective 
fees for Industry Members (other than Execution Venue ATSs) and 
Execution Venues in the following manner. Note that the calculation of 
CAT Reporter fees assumes 53 Equity Execution Venues, 15 Options 
Execution Venues and 1,631 Industry Members (other than Execution Venue 
ATSs) as of January 2017.

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


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

BILLING CODE 8011-01-P

[[Page 28191]]

[GRAPHIC] [TIFF OMITTED] TN20JN17.001

BILLING CODE 8011-01-C

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


[[Page 28192]]


------------------------------------------------------------------------
                                                             Estimated
                                                             number of
               Equity Execution Venue tier                    Equity
                                                             Execution
                                                              Venues
------------------------------------------------------------------------
Tier 1..................................................              13
Tier 2..................................................              40
                                                         ---------------
    Total...............................................              53
------------------------------------------------------------------------

                                                          [GRAPHIC] [TIFF OMITTED] TN20JN17.002
                                                          

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


------------------------------------------------------------------------
                                                             Estimated
                                                             number of
              Options Execution Venue tier                    Options
                                                             Execution
                                                              Venues
------------------------------------------------------------------------
Tier 1..................................................              11
Tier 2..................................................               4
                                                         ---------------
    Total...............................................              15
------------------------------------------------------------------------

                                                          [GRAPHIC] [TIFF OMITTED] TN20JN17.003
                                                          

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

[[Page 28193]]

 
                                        Tier 8..................             328           1,740         570,720
                                        Tier 9..................             735             264         194,040
                                                                 -----------------------------------------------
    Total.............................  ........................           1,631  ..............      38,033,484
----------------------------------------------------------------------------------------------------------------
Equity Execution Venues...............  Tier 1..................              13         253,500       3,295,500
                                        Tier 2..................              40         155,280       6,211,200
                                                                 -----------------------------------------------
    Total.............................  ........................              53  ..............       9,506,700
----------------------------------------------------------------------------------------------------------------
Options Execution Venues..............  Tier 1..................              11         230,460       2,535,060
                                        Tier 2..................               4         158,448         633,792
                                                                 -----------------------------------------------
    Total.............................  ........................              15  ..............       3,168,852
        Total.........................  ........................  ..............  ..............      50,709,036
                                                                 -----------------------------------------------
        Excess \40\...................  ........................  ..............  ..............           9,036
----------------------------------------------------------------------------------------------------------------

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

    \40\ The amount in excess of the total CAT costs will contribute 
to the gradual accumulation of the target operating reserve of 
$11.425 million.
---------------------------------------------------------------------------

    The funding principles require a funding model in which the fees 
charged to the CAT Reporters with the most CAT-related activity 
(measured by market share and/or message traffic, as applicable) are 
generally comparable (where, for these comparability purposes, the 
tiered fee structure takes into consideration affiliations between or 
among CAT Reporters, whether Execution Venue and/or Industry Members). 
Accordingly, in creating the model, the Operating Committee sought to 
take account of the affiliations between or among CAT Reporters--that 
is, where affiliated entities may have multiple Industry Member and/or 
Execution Venue licenses, by maintaining relative comparability of fees 
among such affiliations with the most expected CAT-related activity. To 
do this, the Participants identified representative affiliations in the 
largest tier of both Execution Venues and Industry Members and compared 
the aggregate fees that would be paid by such firms.
    While the proposed fees for Tier 1 and Tier 2 Industry Members are 
relatively higher than those of Tier 1 and Tier 2 Execution Venues, 
Execution Venue complex fees are relatively higher than those of 
Industry Member complexes largely due to affiliations between Execution 
Venues. The tables set forth below describe the largest Execution Venue 
and Industry Member complexes and their associated fees: \41\
---------------------------------------------------------------------------

    \41\ Note that the analysis of the complexes was performed on a 
best efforts basis, as all affiliations between the 1631 Industry 
Members may not be included.

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


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

[[Page 28194]]

 
                                           Tier 7 (x1)
----------------------------------------------------------------------------------------------------------------

(G) Billing Onset
    Under Section 11.1(c) of the CAT NMS Plan, to fund the development 
and implementation of the CAT, the Company shall time the imposition 
and collection of all fees on Participants and Industry Members in a 
manner reasonably related to the timing when the Company expects to 
incur such development and implementation costs. The Company is 
currently incurring such development and implementation costs and will 
continue to do so prior to the commencement of CAT reporting and 
thereafter. For example, the Plan Processor has required up-front 
payments to begin building the CAT. In addition, the Company continues 
to incur consultant and legal expenses on an on-going basis to 
implement the CAT. Accordingly, the Operating Committee determined that 
all CAT Reporters, including both Industry Members and Execution Venues 
(including Participants), would begin to be invoiced as promptly as 
possible following the establishment of a billing mechanism. The 
Operating Committee will issue a notice to the Participants when the 
billing mechanism has been established, specifying the date when such 
invoicing of Participants will commence.
(H) Changes to Fee Levels and Tiers
    Section 11.3(d) of the CAT NMS Plan states that ``[t]he Operating 
Committee shall review such fee schedule on at least an annual basis 
and shall make any changes to such fee schedule that it deems 
appropriate. The Operating Committee is authorized to review such fee 
schedule on a more regular basis, but shall not make any changes on 
more than a semi-annual basis unless, pursuant to a Supermajority Vote, 
the Operating Committee concludes that such change is necessary for the 
adequate funding of the Company.'' With such reviews, the Operating 
Committee will review the distribution of Industry Members and 
Execution Venues across tiers, and make any updates to the percentage 
of CAT Reporters allocated to each tier as may be necessary. In 
addition, the reviews will evaluate the estimated ongoing CAT costs and 
the level of the operating reserve. To the extent that the total CAT 
costs decrease, the fees would be adjusted downward, and, to the extent 
that the total CAT costs increase, the fees would be adjusted 
upward.\42\ Furthermore, any surplus of the Company's revenues over its 
expenses is to be included within the operational reserve to offset 
future fees. The limitations on more frequent changes to the fee, 
however, are intended to provide budgeting certainty for the CAT 
Reporters and the Company.\43\ To the extent that the Operating 
Committee approves changes to the number of tiers in the funding model 
or the fees assigned to each tier, then the Operating Committee will 
file such changes with the SEC pursuant to Rule 608 of the Exchange 
Act, and any such changes will become effective in accordance with the 
requirements of Rule 608.
---------------------------------------------------------------------------

    \42\ The CAT Fees are designed to recover the costs associated 
with the CAT. Accordingly, CAT Fees would not be affected by 
increases or decreases in other non-CAT expenses incurred by the 
self-regulatory organizations, such as any changes in costs related 
to the retirement of existing regulatory systems, such as OATS.
    \43\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
---------------------------------------------------------------------------

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

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Period A                                                                     Period B
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Market share                                                             Market share
            Options Execution Venue                   rank             Tier               Options Execution Venue              rank            Tier
--------------------------------------------------------------------------------------------------------------------------------------------------------
Options Execution Venue A......................               1               1   Options Execution Venue A.............               1               1

[[Page 28195]]

 
Options Execution Venue B......................               2               1   Options Execution Venue B.............               2               1
Options Execution Venue C......................               3               1   Options Execution Venue C.............               3               1
Options Execution Venue D......................               4               1   Options Execution Venue D.............               4               1
Options Execution Venue E......................               5               1   Options Execution Venue E.............               5               1
Options Execution Venue F......................               6               1   Options Execution Venue F.............               6               1
Options Execution Venue G......................               7               1   Options Execution Venue I.............               7               1
Options Execution Venue H......................               8               1   Options Execution Venue H.............               8               1
Options Execution Venue I......................               9               1   Options Execution Venue G.............               9               1
Options Execution Venue J......................              10               1   Options Execution Venue J.............              10               1
Options Execution Venue K......................              11               1   Options Execution Venue L.............              11               1
Options Execution Venue L......................              12               2   Options Execution Venue K.............              12               2
Options Execution Venue M......................              13               2   Options Execution Venue N.............              13               2
Options Execution Venue N......................              14               2   Options Execution Venue M.............              14               2
Options Execution Venue O......................              15               2   Options Execution Venue O.............              15               2
--------------------------------------------------------------------------------------------------------------------------------------------------------

(3) Proposed CAT Fee Schedule
    The Operating Committee proposes to add Exhibit B to the CAT NMS 
Plan to add a fee schedule setting forth the CAT Fees applicable to 
Participants. Proposed Exhibit B is set forth in Appendix A to this 
letter. Paragraph (a)(1) of proposed Exhibit B sets forth the CAT Fees 
applicable to Execution Venues for NMS Stocks and OTC Equity 
Securities. Specifically, paragraph (a)(1) states that the Company will 
assign each Execution Venue for NMS Stocks and/or OTC Equity Securities 
to a fee tier once every quarter, where such tier assignment is 
calculated by ranking each such Execution Venue based on its total 
market share for the three months prior to the quarterly tier 
calculation day and assigning each such Execution Venue to a tier based 
on that ranking and predefined percentages for such Execution Venues. 
The Execution Venues for NMS Stocks and/or OTC Equity Securities with 
the higher total quarterly market share will be ranked in Tier 1, and 
such Execution Venues with the lower quarterly market share will be 
ranked in Tier 2. Specifically, paragraph (a)(1) states that, each 
quarter, each Execution Venue for NMS Stocks and/or OTC Equity 
Securities shall pay in the manner prescribed by the Company the 
following CAT Fee corresponding to the tier assigned by the CAT NMS, 
LLC for such Execution Venue for that quarter:

------------------------------------------------------------------------
                                           Percentage of
                                             Execution
                                          Venues for NMS   Quarterly CAT
                  Tier                     stocks and/or        fee
                                            OTC equity
                                            securities
------------------------------------------------------------------------
1.......................................           25.00         $63,375
2.......................................           75.00          38,820
------------------------------------------------------------------------

    In addition, paragraph (a)(2) of the proposed Exhibit B states that 
the Company will assign each Execution Venue for Listed Options to a 
fee tier once every quarter, where such tier assignment is calculated 
by ranking each such Execution Venue based on its total market share 
for the three months prior to the quarterly tier calculation day and 
assigning each such Execution Venue to a tier based on that ranking and 
predefined percentages for such Execution Venues. The Execution Venues 
for Listed Options with the higher total quarterly market share will be 
ranked in Tier 1, and such Execution Venues with the lower quarterly 
market share will be ranked in Tier 2. Specifically, paragraph (b)(1) 
states that, each quarter, each Execution Venue for Listed Options 
shall pay in the manner prescribed by the Company the following CAT Fee 
corresponding to the tier assigned by the CAT NMS, LLC for such 
Execution Venue for that quarter:

------------------------------------------------------------------------
                                           Percentage of
                                             Execution
                  Tier                      Venues for     Quarterly CAT
                                          listed options        fee
                                                (%)
------------------------------------------------------------------------
1.......................................           25.00         $57,615
2.......................................           75.00          39,612
------------------------------------------------------------------------

B. Governing or Constituent Documents

    Not applicable.

C. Implementation of Amendment

    The terms of the proposed amendment will become effective upon 
filing pursuant to Rule 608(b)(3)(i) of the Exchange Act because it 
establishes a fee or other charge collected on behalf of all of the 
Participants in connection with access to, or use of, any facility 
contemplated by the plan (including changes in any provision with 
respect to distribution of any net proceeds from such fees or other 
charges to the sponsors and/or participants).\44\ At any time within 
sixty days of the filing of this amendment, the Commission may 
summarily abrogate the amendment and require that it be refiled 
pursuant to paragraph (b)(1) [sic] of Rule 608, if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors or the maintenance of fair 
and orderly markets, to remove impediments to, and perfect the 
mechanisms of, a national market system or otherwise in furtherance of 
the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \44\ 17 CFR 242.608(b)(3)(i).
---------------------------------------------------------------------------

D. Development and Implementation Phases

    Not applicable.

E. Analysis of Impact on Competition

    The Operating Committee does not believe that the proposed 
amendment will result in any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. The Operating Committee notes that the proposed amendment 
implements provisions of the CAT NMS Plan approved by the Commission, 
and is designed to assist the Participants in meeting their regulatory 
obligations pursuant to the Plan. Because all national securities 
exchanges and FINRA are subject to the proposed CAT Fees set forth in 
the proposed amendment, this is not a competitive filing that raises 
competition issues between and among the exchanges and FINRA.
    Moreover, as previously described, the Operating Committee believes 
that the proposed fee schedule fairly and equitably allocates costs 
among CAT Reporters. In particular, the proposed

[[Page 28196]]

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

F. Written Understanding or Agreements Relating to Interpretation of, 
or Participation in, Plan

    Not applicable.

G. Approval by Plan Sponsors in Accordance With Plan

    Section 12.3 of the Plan states that, subject to certain 
exceptions, the Plan may be amended from time to time only by a written 
amendment, authorized by the affirmative vote of not less than two-
thirds of all of the Participants, that has been approved by the SEC 
pursuant to Rule 608 or has otherwise become effective under Rule 608. 
In addition, Section 4.3(a)(vi) of the Plan requires the Operating 
Committee, by Majority Vote, to authorize action to determine the 
appropriate funding-related policies, procedures and practices-
consistent with Article XI. The Operating Committee has satisfied both 
of these requirements.

H. Description of Operation of Facility Contemplated by the Proposed 
Amendment

    Not applicable.

I. Terms and Conditions of Access

    Not applicable.

J. Method of Determination and Imposition, and Amount of, Fees and 
Charges

    Section A of this letter describes in detail how the Operating 
Committee developed the proposed CAT fees, including a detailed 
discussion of the proposed funding model for the CAT.

K. Method and Frequency of Processor Evaluation

    Not applicable.

L. Dispute Resolution

    Section 11.5 of the CAT NMS Plan addresses the resolution of 
disputes regarding Participants' CAT fees charged to Participants and 
Industry Members. Specifically, Section 11.5 states that disputes with 
respect to fees the Company charges Participants pursuant to Article XI 
of the CAT NMS Plan shall be determined by the Operating Committee or a 
Subcommittee designated by the Operating Committee. Decisions by the 
Operating Committee or such designated Subcommittee on such matters 
shall be binding on Participants, without prejudice to the rights of 
any Participant to seek redress from the SEC pursuant to Rule 608 or in 
any other appropriate forum.

III. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number 4-698 on the subject line.

Paper Comments

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

All submissions should refer to File Number 4-698.This file number 
should be included on the subject line if email is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed plan amendment that are filed 
with the Commission, and all written communications relating to the 
amendment between the Commission and any person, other than those that 
may be withheld from the public in accordance with the provisions of 5 
U.S.C. 552, will be available for Web site viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE., Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the Participants' offices. All comments received will be 
posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number 4-698 and should be submitted on or before 
July 11, 2017.

    By the Commission.
Eduardo A. Aleman,
Assistant Secretary.

Appendix A

    [Additions underlined; deletions bracketed]

Exhibit B

CAT Fees

    (a) Participant CAT Fee Schedule.
    (1) CAT Fees: Execution Venues for NMS Stocks and/or OTC Equity 
Securities.
    The CAT NMS, LLC will assign each Execution Venue for NMS Stocks 
and/or OTC Equity Securities to a fee tier once every quarter, where 
such tier assignment is calculated by ranking each such Execution 
Venue based on its total market share for the three months prior to 
the quarterly tier calculation day and assigning each such Execution 
Venue to a tier based on that ranking and predefined percentages for 
such Execution Venues. The Execution Venues for NMS Stocks and/or 
OTC Equity Securities with the higher total quarterly market share 
will be ranked in Tier 1, and such Execution Venues with the lower 
quarterly market share will be ranked in Tier 2. Each quarter, each 
Execution Venue for NMS Stocks and/or OTC Equity Securities shall 
pay in the manner prescribed by the CAT NMS, LLC the following CAT 
Fee corresponding to the tier assigned by the CAT NMS, LLC for such 
Execution Venue for that quarter:

[[Page 28197]]



------------------------------------------------------------------------
                                           Percentage of
                                             Execution
                                          Venues for NMS
                                           stocks and/or
                  Tier                      OTC equity     Quarterly CAT
                                          securities (%)        fee
 
 
 
------------------------------------------------------------------------
1.......................................           25.00         $63,375
2.......................................           75.00          38,820
------------------------------------------------------------------------

    (2) CAT Fees: Execution Venues for Listed Options
    The CAT NMS, LLC will assign each Execution Venue for Listed 
Options to a fee tier once every quarter, where such tier assignment 
is calculated by ranking each such Execution Venue based on its 
total market share for the three months prior to the quarterly tier 
calculation day and assigning each such Execution Venue to a tier 
based on that ranking and predefined percentages for such Execution 
Venues. The Execution Venues for Listed Options with the higher 
total quarterly market share will be ranked in Tier 1, and such 
Execution Venues with the lower quarterly market share will be 
ranked in Tier 2. Each quarter, each Execution Venue for Listed 
Options shall pay in the manner prescribed by the CAT NMS, LLC the 
following CAT Fee corresponding to the tier assigned by the CAT NMS, 
LLC for such Execution Venue for that quarter:

------------------------------------------------------------------------
                                           Percentage of
                                             Execution
                                            Venues for
                  Tier                    listed options   Quarterly CAT
                                                (%)             fee
 
 
------------------------------------------------------------------------
1.......................................           25.00         $57,615
2.......................................           75.00          39,612
------------------------------------------------------------------------

Appendix B

     
---------------------------------------------------------------------------

    \45\ Based on November 2016 through January 2017 volume sourced 
from Bats and FINRA.

                  Equity Execution Venue Rank and Tier
------------------------------------------------------------------------
                                     Market share
                                       of share
        Market participant            volume \45\      Rank       Tier
                                          (%)
------------------------------------------------------------------------
OTC LINK ATS......................           29.90          1          1
Financial Industry Regulatory                16.50          2          1
 Authority, Inc...................
The NASDAQ Stock Market LLC.......            9.67          3          1
New York Stock Exchange LLC.......            9.08          4          1
NYSE Arca, Inc....................            7.05          5          1
Bats EDGX Exchange, Inc...........            4.89          6          1
Bats BZX Exchange, Inc............            4.24          7          1
Bats BYX Exchange, Inc............            3.06          8          1
NASDAQ BX, Inc....................            1.85          9          1
UBS ATS...........................            1.78         10          1
Bats EDGA Exchange, Inc...........            1.69         11          1
Investors' Exchange, LLC..........            1.25         12          1
CROSSFINDER.......................            1.09         13          1
SUPERX............................            0.79         14          2
MS POOL (ATS-4)...................            0.68         15          2
NASDAQ PHLX LLC...................            0.66         16          2
J.P. MORGAN AST (``JPM-X'').......            0.56         17          2
LEVEL ATS.........................            0.49         18          2
INSTINCT X........................            0.48         19          2
BIDS TRADING L.P..................            0.44         20          2
BARCLAYS ATS (``LX'').............            0.43         21          2
KCG MATCHIT.......................            0.42         22          2
SIGMA X...........................            0.39         23          2
INSTINET CONTINUOUS BLOCK CROSSING            0.34         24          2
 SYSTEM (CBX).....................
Chicago Stock Exchange, Inc.......            0.31         25          2
POSIT.............................            0.30         26          2
CROSSSTREAM.......................            0.25         27          2
MS TRAJECTORY CROSS (ATS-1).......            0.16         28          2
NYSE MKT LLC......................            0.14         29          2
LIQUIDNET ATS.....................            0.13         30          2
IBKR ATS..........................            0.13         31          2
MILLENNIUM........................            0.12         32          2
GLOBAL OTC........................            0.12         33          2
DEALERWEB, INC....................            0.11         34          2
CITICROSS.........................            0.09         35          2
BLOCKCROSS ATS....................            0.08         36          2
LIQUIDNET H20 ATS.................            0.07         37          2
CODA MARKETS, INC.................            0.07         38          2
INSTINET CROSSING, INSTINET BLX...            0.06         39          2
LUMINEX TRADING & ANALYTICS LLC...            0.03         40          2
LIGHT POOL........................            0.02         41          2
MS RETAIL POOL....................            0.02         42          2
CITIBLOC..........................            0.02         43          2
NYSE National, Inc................            0.01         44          2
USTOCKTRADE SECURITIES, INC.......            0.01         45          2
AQUA SECURITIES L.P...............          0.0047         46          2
XE................................          0.0037         47          2
LIQUIFI...........................          0.0014         48          2
VARIABLE INVESTMENT ADVISORS, INC.        0.000073         49          2
 ATS (VIAATS).....................
BARCLAYS DIRECTEX.................       0.0000303         50          2

[[Page 28198]]

 
FNC AG STOCK, LLC.................       0.0000225         51          2
AX TRADING, LLC...................       0.0000026         52          2
PRO SECURITIES ATS................       0.0000002         53          2
------------------------------------------------------------------------


                  Options Execution Venue Rank and Tier
------------------------------------------------------------------------
                                     Market share
                                       of share
                                        volume
        Market participant             (Options        Rank       Tier
                                      contracts)
                                       \46\ (%)
------------------------------------------------------------------------
NASDAQ PHLX LLC...................           16.68          1          1
Chicago Board Options Exchange,              16.08          2          1
 Incorporated.....................
Bats BZX Options Exchange, Inc....           11.53          3          1
Nasdaq ISE, LLC...................           10.63          4          1
NYSE Arca, Inc....................            9.52          5          1
The NASDAQ Options Market LLC.....            9.01          6          1
NYSE MKT LLC......................            8.01          7          1
Miami International Securities                5.84          8          1
 Exchange, LLC....................
Nasdaq GEMX, LLC..................            4.16          9          1
Chicago Board Options Exchange,               3.33         10          1
 Incorporated 2...................
BOX Options Exchange LLC..........            3.02         11          1
Bats EDGX Options Exchange, Inc...            1.31         12          2
NASDAQ BX, Inc....................            0.67         13          2
Nasdaq MRX, LLC...................            0.21         14          2
MIAX PEARL, LLC...................        N/A \47\         15          2
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    \46\ Based on November 2016 through January 2017 volume sourced 
from Bats.
    \47\ No market statistics as of January 2017. Launched trading 
operations on February 6, 2017.
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[FR Doc. 2017-12771 Filed 6-19-17; 8:45 am]
 BILLING CODE 8011-01-P