[Federal Register Volume 89, Number 30 (Tuesday, February 13, 2024)]
[Notices]
[Pages 10850-10887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-01194]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99363; File No. SR-FINRA-2024-002]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt 
FINRA Rule 6897(a) and Supplementary Material To Establish Fees for 
Industry Members Related to Certain Historical Costs of the National 
Market System Plan Governing the Consolidated Audit Trail; Suspension 
of and Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove the Proposed Rule Change

January 17, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'' or the ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that, on January 2, 2024, the Financial Industry 
Regulatory Authority, Inc. (``FINRA'') filed with the Securities and 
Exchange Commission (``SEC'' or the ``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by FINRA. FINRA has designated the proposed rule change as 
``establishing or changing a due, fee or other charge'' under Section 
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ 
which renders the proposal effective upon receipt of this filing by the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons and is, 
pursuant to Section 19(b)(3)(C) of the Act, hereby: (i) temporarily 
suspending the rule change; and (ii) instituting proceedings to 
determine whether to approve or disapprove the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adopt FINRA Rule 6897 (Consolidated Audit 
Trail Funding Fees) to establish fees for Industry Members \5\ related 
to certain historical costs of the National Market System Plan 
Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or 
``Plan'') incurred prior to January 1, 2022. These fees would be 
payable to Consolidated Audit Trail, LLC (``CAT LLC'' or ``the 
Company'') \6\ and referred to as Historical CAT Assessment 1.
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    \5\ An ``Industry Member'' is defined as ``a member of a 
national securities exchange or a member of a national securities 
association.'' See FINRA Rule 6810(u). See also Section 1.1 of the 
CAT NMS Plan. Unless otherwise specified, capitalized terms used in 
this rule filing are defined as set forth in the CAT NMS Plan and/or 
the CAT Compliance Rule. See FINRA Rule 6800 Series (Consolidated 
Audit Trail Compliance Rule).
    \6\ The term ``CAT LLC'' may be used to refer to Consolidated 
Audit Trail, LLC or CAT NMS, LLC, depending on the context.
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    The fee rate for Historical CAT Assessment 1 will be $0.000015 per 
executed equivalent share. CAT Executing Brokers will receive their 
first monthly invoice for Historical CAT Assessment 1 in April 2024 
calculated based on their transactions as CAT Executing Brokers for the 
Buyer (``CEBB'') and/or CAT Executing Brokers for the Seller (``CEBS'') 
in March 2024.
    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    On July 11, 2012, the Commission adopted Rule 613 of Regulation 
NMS, which required the self-regulatory organizations (``SROs'') to 
submit a national market system (``NMS'') plan to create, implement and 
maintain a consolidated audit trail that would capture customer and 
order event information for orders in NMS securities across all 
markets, from the time of order inception through routing, 
cancellation, modification or execution.\7\ On November 15, 2016, the 
Commission approved the CAT NMS Plan.\8\ Under the CAT NMS Plan, the 
Operating Committee has the discretion to establish funding for CAT LLC 
to operate the CAT, including establishing fees for Industry Members to 
be assessed by CAT LLC that would be implemented on behalf of CAT LLC 
by the Participants.\9\ The Operating Committee adopted a revised 
funding model to fund the CAT (``CAT Funding Model''). On September 6, 
2023, the Commission approved the CAT Funding Model, after concluding 
that the model was reasonable and that it satisfied the requirements of 
Section 11A of the Exchange Act and Rule 608 thereunder.\10\
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    \7\ See Securities Exchange Act Release. No. 67457 (July 18, 
2012), 77 FR 45721 (August 1, 2012).
    \8\ See Securities Exchange Act Release. No. 79318 (November 15, 
2016), 81 FR 84696 (November 23, 2016) (``CAT NMS Plan Approval 
Order'').
    \9\ Section 11.1(b) of the CAT NMS Plan.
    \10\ See Securities Exchange Act Release No. 98290 (September 6, 
2023), 88 FR 62628 (September 12, 2023) (``CAT Funding Model 
Approval Order'').
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    The CAT Funding Model provides a framework for the recovery of the 
costs to create, develop and maintain the CAT, including providing a 
method for allocating costs to fund the CAT among Participants and 
Industry Members. The CAT Funding Model establishes two categories of 
fees: (1) CAT fees assessed by CAT LLC and payable by certain Industry 
Members to recover a portion of historical CAT costs previously paid by 
the Participants (``Historical CAT Assessment'' fees); and (2) CAT fees 
assessed by CAT LLC and payable by Participants and Industry Members to 
fund prospective CAT costs (``Prospective CAT Costs'' fees).\11\
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    \11\ Under the CAT Funding Model, the Operating Committee may 
establish one or more Historical CAT Assessments. See Section 
11.3(b) of the CAT NMS Plan. This filing only establishes Historical 
CAT Assessment 1 related to certain Historical CAT Costs as 
described herein; it does not address any other potential Historical 
CAT Assessment related to other Historical CAT Costs. In addition, 
under the CAT Funding Model, the Operating Committee also may 
establish CAT Fees related to CAT costs going forward. See Section 
11.3(a) of the CAT NMS Plan. This filing does not address any 
potential CAT Fees related to CAT costs going forward. Any such 
other fee for any other Historical CAT Assessment or CAT Fee for 
Prospective CAT Costs will be subject to a separate fee filing.

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[[Page 10851]]

    Under the CAT Funding Model, ``[t]he Operating Committee will 
establish one or more fees (each a `Historical CAT Assessment') to be 
payable by Industry Members with regard to CAT costs previously paid by 
the Participants (`Past CAT Costs').'' \12\ In establishing a 
Historical CAT Assessment, the Operating Committee will determine a 
``Historical Recovery Period'' and calculate a ``Historical Fee Rate'' 
for that Historical Recovery Period. Then, for each month in which a 
Historical CAT Assessment is in effect, each CEBB and CEBS would be 
required to pay the fee--the Historical CAT Assessment--for each 
transaction in Eligible Securities executed by the CEBB or CEBS from 
the prior month as set forth in CAT Data, where the Historical CAT 
Assessment for each transaction will be calculated by multiplying the 
number of executed equivalent shares in the transaction by one-third 
and by the Historical Fee Rate.\13\
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    \12\ Section 11.3(b) of the CAT NMS Plan.
    \13\ In approving the CAT Funding Model, the Commission stated 
that, ``[i]n the Commission's view, the proposed recovery of the 
Past CAT Costs via the Historical CAT Assessment is reasonable.'' 
See CAT Funding Model Approval Order, 88 FR 62628, 62662.
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    Each Historical CAT Assessment to be paid by CEBBs and CEBSs is 
designed to contribute toward the recovery of two-thirds of the 
Historical CAT Costs. Because the Participants previously have paid 
Past CAT Costs via loans to the Company, the Participants would not be 
required to pay any Historical CAT Assessment. In lieu of a Historical 
CAT Assessment, the Participants' one-third share of Historical CAT 
Costs will be paid by the cancellation of loans made by the 
Participants to the Company on a pro rata basis based on the 
outstanding loan amounts due under the loans, instead of through the 
payment of a CAT fee.\14\ In addition, Participants also will be 100% 
responsible for certain Excluded Costs (as discussed below).
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    \14\ Section 11.3(b)(ii) of the CAT NMS Plan.
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    CAT LLC proposes to charge CEBBs and CEBSs (as described in more 
detail below) Historical CAT Assessment 1 to recover certain historical 
CAT costs incurred prior to January 1, 2022, in accordance with the CAT 
Funding Model.\15\ To implement this fee on behalf of CAT LLC, the CAT 
NMS Plan requires the Participants to ``file with the SEC under Section 
19(b) of the Exchange Act any such fees on Industry Members that the 
Operating Committee approves, and such fees shall be labeled as 
`Consolidated Audit Trail Funding Fees.' '' \16\ The Plan further 
states that ``Participants will be required to file with the SEC 
pursuant to Section 19(b) of the Exchange Act a filing for each 
Historical CAT Assessment.'' \17\ Accordingly, the purpose of this 
filing is to implement a Historical CAT Assessment on behalf of CAT LLC 
for Industry Members, referred to as Historical CAT Assessment 1, in 
accordance with the CAT NMS Plan.\18\
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    \15\ FINRA, along with each of the Plan Participants, is 
proposing to implement Historical CAT Assessment 1 to enable the 
Participants to collectively recover the Industry Members' 
designated share of Historical CAT Costs incurred prior to January 
1, 2022. See Section 11.3(b)(iii) of the CAT NMS Plan.
    \16\ Section 11.1(b) of the CAT NMS Plan.
    \17\ Section 11.3(b)(iii)(B)(I) of the CAT NMS Plan.
    \18\ Note that there may be one or more Historical CAT 
Assessments depending on the timing of the completion of the 
Financial Accountability Milestones, among other things. Section 
11.3(b) of the CAT NMS Plan.
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(1) CAT Executing Brokers
    Historical CAT Assessment 1 will be charged to each CEBB and CEBS 
for each applicable transaction in Eligible Securities.\19\ The CAT NMS 
Plan defines a ``CAT Executing Broker'' to mean:
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    \19\ In its approval of the CAT Funding Model, the Commission 
determined that charging CAT fees to CAT Executing Brokers was 
reasonable. In reaching this conclusion the Commission noted that 
the use of CAT Executing Brokers is appropriate because the CAT 
Funding Model is based upon the calculation of executed equivalent 
shares, and, therefore, charging CAT Executing Brokers would reflect 
their executing role in each transaction. Furthermore, the 
Commission noted that, because CAT Executing Brokers are already 
identified in transaction reports from the exchanges and FINRA's 
equity trade reporting facilities recorded in CAT Data, charging CAT 
Executing Brokers could streamline the billing process. See CAT 
Funding Model Approval Order, 88 FR 62628, 62629.

    (a) with respect to a transaction in an Eligible Security that 
is executed on an exchange, the Industry Member identified as the 
Industry Member responsible for the order on the buy-side of the 
transaction and the Industry Member responsible for the sell-side of 
the transaction in the equity order trade event and option trade 
event in the CAT Data submitted to the CAT by the relevant exchange 
pursuant to the Participant Technical Specifications; and (b) with 
respect to a transaction in an Eligible Security that is executed 
otherwise than on an exchange and required to be reported to an 
equity trade reporting facility of a registered national securities 
association, the Industry Member identified as the executing broker 
and the Industry Member identified as the contra-side executing 
broker in the TRF/ORF/ADF transaction data event in the CAT Data 
submitted to the CAT by FINRA pursuant to the Participant Technical 
Specifications; provided, however, in those circumstances where 
there is a non-Industry Member identified as the contra-side 
executing broker in the TRF/ORF/ADF transaction data event or no 
contra-side executing broker is identified in the TRF/ORF/ADF 
transaction data event, then the Industry Member identified as the 
executing broker in the TRF/ORF/ADF transaction data event would be 
treated as CAT Executing Broker for the Buyer and for the 
Seller.\20\
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    \20\ Section 1.1 of the CAT NMS Plan. Note that CEBBs and CEBSs 
may, but are not required to, pass-through their CAT fees to their 
clients, who may, in turn, pass their fees to their clients until 
they are imposed ultimately on the account that executed the 
transaction. See CAT Funding Model Approval Order at 62649.

    Fields Nos. 26 and 28 of the Participant Technical Specifications, 
listed below, indicate the CAT Executing Brokers for transactions 
executed otherwise than on an exchange.
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    \21\ See Table 61, Section 6.1 (TRF/ORF/ADF Transaction Data 
Event) of the CAT Reporting Technical Specifications for Plan 
Participants.
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[[Page 10852]]


(2) Calculation of Historical Fee Rate 1
    The Operating Committee determined the Historical Fee Rate to be 
used in calculating Historical CAT Assessment 1 (``Historical Fee Rate 
1'') by dividing the Historical CAT Costs for Historical CAT Assessment 
1 (``Historical CAT Costs 1'') by the projected total executed share 
volume of all transactions in Eligible Securities for the Historical 
Recovery Period for Historical CAT Assessment 1 (``Historical Recovery 
Period 1''), as discussed in detail below. Based on this calculation, 
the Operating Committee has determined that Historical Fee Rate 1 would 
be $0.0000439371316687066 per executed equivalent share. This rate is 
then divided by three and rounded to determine the fee rate of 
$0.000015 per executed equivalent share that will be assessed to CEBBs 
and CEBSs, as also discussed in detail below.
(A) Executed Equivalent Shares for Transactions in Eligible Securities
    Under the CAT NMS Plan, for purposes of calculating each Historical 
CAT Assessment, executed equivalent shares in a transaction in Eligible 
Securities will be reasonably counted as follows: (1) each executed 
share for a transaction in NMS Stocks will be counted as one executed 
equivalent share; (2) each executed contract for a transaction in 
Listed Options will be counted based on the multiplier applicable to 
the specific Listed Options (i.e., 100 executed equivalent shares or 
such other applicable multiplier); and (3) each executed share for a 
transaction in OTC Equity Securities shall be counted as 0.01 executed 
equivalent share.\22\
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    \22\ Section 11.3(a)(i)(B) and 11.3(b)(i)(B) of the CAT NMS 
Plan. In approving the CAT Funding Model, the Commission concluded 
that ``the use of executed equivalent share volume as the basis of 
the proposed cost allocation methodology is reasonable and 
consistent with the approach taken by the funding principles of the 
CAT NMS Plan.'' See CAT Funding Model Approval Order, 88 FR 62628, 
62640.
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(B) Historical CAT Costs 1
    The CAT NMS Plan states that ``[t]he Operating Committee will 
reasonably determine the Historical CAT Costs sought to be recovered by 
each Historical CAT Assessment, where the Historical CAT Costs will be 
Past CAT Costs minus Past CAT Costs reasonably excluded from Historical 
CAT Costs by the Operating Committee. Each Historical CAT Assessment 
will seek to recover from CAT Executing Brokers two-thirds of 
Historical CAT Costs incurred during the period covered by the 
Historical CAT Assessment.'' \23\ As described in detail below, 
Historical CAT Costs 1 would be $337,688,610. This figure includes Past 
CAT Costs of $401,312,909 minus certain Excluded Costs of $63,624,299. 
Participants collectively will remain responsible for one-third of 
Historical CAT Costs 1 (which is $112,562,870), plus the Excluded Costs 
of $63,624,299. CEBBs collectively will be responsible for one-third of 
Historical CAT Costs 1 (which is $112,562,870), and CEBSs collectively 
will be responsible for one-third of Historical CAT Costs 1 (which is 
$112,562,870).
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    \23\ Section 11.3(b)(i)(C) of the CAT NMS Plan.
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    The following describes in detail Historical CAT Costs 1 with 
regard to four separate historical time periods as well as Past CAT 
Costs excluded from Historical CAT Costs 1 (``Excluded Costs''). The 
following cost details are provided in accordance with the requirement 
in the CAT NMS Plan to provide in the fee filing ``a brief description 
of the amount and type of Historical CAT Costs, including (1) the 
technology line items of cloud hosting services, operating fees, CAIS 
operating fees, change request fees, and capitalized developed 
technology costs, (2) legal, (3) consulting, (4) insurance, (5) 
professional and administration and (6) public relations costs.'' \24\ 
Each of the costs described below are reasonable, appropriate and 
necessary for the creation, implementation and maintenance of CAT.
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    \24\ Section 11.3(b)(iii)(B)(II)(B) of the CAT NMS Plan.
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(i) Historical CAT Costs Incurred Prior to June 22, 2020 (Pre-FAM 
Costs)
    Historical CAT Costs 1 would include costs incurred by CAT prior to 
June 22, 2020 (``Pre-FAM Period'') and already funded by the 
Participants, excluding Excluded Costs (described further below). 
Historical CAT Costs 1 would include costs for the Pre-FAM Period of 
$143,919,521. The Participants would remain responsible for one-third 
of this cost (which they have previously paid) ($47,973,174), and 
Industry Members would be responsible for the remaining two-thirds, 
with CEBBs paying one-third ($47,973,174) and CEBSs paying one-third 
($47,973,174). These costs do not include Excluded Costs, as discussed 
further below. The following table breaks down Historical CAT Costs 1 
for the Pre-FAM Period into the categories set forth in Section 
11.3(b)(iii)(B)(II) of the CAT NMS Plan.

[[Page 10853]]

[GRAPHIC] [TIFF OMITTED] TN13FE24.243

    The Pre-FAM Period includes a broad range of CAT-related activity 
from 2012 through June 22, 2020, including the evaluation of the 
requirements of SEC Rule 613, the development of the CAT NMS Plan, the 
evaluation and selection of the initial and successor Plan Processors, 
the commencement of the creation and implementation of the CAT to 
comply with Rule 613 and the CAT NMS Plan, including technical 
specifications for transaction reporting and regulatory access, and 
related technology and the commencement of reporting to the CAT. The 
following describes the costs for each of the categories for the Pre-
FAM Period.
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    \25\ With respect to certain costs that were ``appropriately 
excluded,'' such excluded costs relate to the amortization of 
capitalized technology costs, which are amortized over the life of 
the Plan Processor Agreement. As such costs have already been 
otherwise reflected in the filing, their inclusion would double 
count the capitalized technology costs. In addition, amortization is 
a non-cash expense.
    \26\ The costs described in this table of costs for the Pre-FAM 
Period were calculated based upon CAT LLC's review of applicable 
bills and invoices and related financial statements. CAT LLC 
financial statements are available on the CAT website. In addition, 
in accordance with Section 6.6(a)(i) of the CAT NMS Plan, in 2018 
CAT LLC provided the SEC with ``an independent audit of fees, costs, 
and expenses incurred by the Participants on behalf of the Company 
prior to the Effective Date of the Plan that will be publicly 
available.'' The audit is available on the CAT website.
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(a) Technology Costs--Cloud Hosting Services
    The $10,268,840 in technology costs for cloud hosting services 
represent costs incurred for services provided by the cloud services 
provider for the CAT, Amazon Web Services, Inc. (``AWS''), during the 
Pre-FAM Period.
    As part of its proposal for acting as the successor Plan Processor 
for the CAT, FINRA CAT, LLC (``FCAT'') selected AWS as a subcontractor 
to provide cloud hosting services. In 2019, after reviewing the 
capabilities of other cloud services providers, FCAT determined that 
AWS was the only cloud services provider at that time sufficiently 
mature and capable of providing the full suite of necessary cloud 
services for the CAT, including, for example, the security, resiliency 
and complexity necessary for the CAT computing requirements. The use of 
cloud hosting services is standard for this type of high-volume data 
activity and reasonable and necessary for implementation of the CAT, 
particularly given the substantial data volumes associated with the 
CAT.
    Under the Plan Processor Agreement with FCAT, CAT LLC is required 
to pay FCAT the fees incurred by the Plan Processor for cloud hosting 
services provided by AWS as FCAT's subcontrator on a monthly basis for 
the cloud hosting services, and FCAT, in turn, pays such fees to AWS. 
The fees for cloud hosting services were negotiated by FCAT on an arm's 
length basis with the goals of managing cost and receiving services 
required to comply with the CAT NMS Plan and Rule 613, taking into 
consideration a variety of factors, including the expected volume of 
data, the breadth of services provided and market rates for similar 
services. The fees for cloud hosting services during the Pre-FAM Period 
were paid to FCAT by CAT NMS LLC \27\ and subsequently Consolidated 
Audit Trail, LLC (as previously noted, both entities are referred to 
generally as ``CAT LLC''),\28\ and FCAT, in turn, paid AWS. CAT LLC was 
funded via loan contributions by the Participants.\29\
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    \27\ CAT NMS, LLC was formed by FINRA and the U.S. national 
securities exchanges to implement the requirements of SEC Rule 613 
under the Exchange Act. SEC Rule 613 required the SROs to jointly 
submit to the SEC the CAT NMS Plan to create, implement and maintain 
the CAT. The SEC approved the CAT NMS Plan on November 15, 2016. See 
CAT NMS Plan Approval Order, supra note 8.
    \28\ On August 29, 2019, the Participants formed a new Delaware 
limited liability company named Consolidated Audit Trail, LLC for 
the purpose of conducting activities related to the CAT from and 
after the effectiveness of the proposed amendment of the CAT NMS 
Plan to replace CAT NMS, LLC. See Securities Exchange Act Release 
No. 87149 (September 27, 2019), 84 FR 52905 (October 3, 2019).
    \29\ For each of the costs paid by CAT NMS, LLC and Consolidated 
Audit Trail, LLC as discussed throughout this filing, CAT NMS, LLC 
and Consolidated Audit Trail, LLC paid these costs via loan 
contributions by the Participants to CAT NMS, LLC and Consolidated 
Audit Trail, LLC, respectively.

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[[Page 10854]]

    AWS was engaged by FCAT to provide a broad array of cloud hosting 
services for the CAT, including data ingestion, data management, and 
analytic tools. Services provided by AWS include storage services, 
databases, compute services and other services (such as networking, 
management tools and DevOps tools). AWS also was engaged to provide 
various environments for CAT, such as development, performance testing, 
test and production environments.
    The cost for AWS services for the CAT is a function of the volume 
of CAT Data. The greater the amount of CAT Data, the greater the cost 
of AWS services to the CAT. During the Pre-FAM Period from the 
engagement of AWS in February 2019 through June 2020, AWS provided 
cloud hosting services for volumes of CAT Data far in excess of the 
volume predictions set forth in the CAT NMS Plan. The CAT NMS Plan 
states, when all CAT Reporters are submitting their data to the CAT, it 
``must be sized to receive[,] process and load more than 58 billion 
records per day,'' \30\ and that ``[i]t is expected that the Central 
Repository will grow to more than 29 petabytes of raw, uncompressed 
data.'' \31\ However, the volume of CAT Data for the Pre-FAM Period was 
far in excess of these predicted levels. By the end of this period, 
data submitted to the CAT included options and equities Participant 
Data,\32\ Phase 2a and Phase 2b Industry Member Data \33\ (including 
certain linkages), as well as SIP Data,\34\ reference data and other 
types of Other Data.\35\ The following chart provides data regarding 
the average daily volume, cumulative total events, total compute hours 
and storage footprint of the CAT during the Pre-FAM Period.\36\
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    \30\ CAT NMS Plan, Appendix D-4 n.262.
    \31\ CAT NMS Plan, Appendix D-5.
    \32\ See Section 6.3(d) of the CAT NMS Plan.
    \33\ See Securities Exchange Release No. 88702 (April 20, 2020), 
85 FR 23075 (April 24, 2020) (``Phased Reporting Exemptive Relief 
Order'') for a description of Phase 2a and Phase 2b Industry Member 
Data.
    \34\ See Section 6.5(a)(ii) of the CAT NMS Plan.
    \35\ See CAT NMS Plan, Appendix C-108.
    \36\ Note that the volume data described in this table does not 
include CAIS data.
[GRAPHIC] [TIFF OMITTED] TN13FE24.244

(b) Technology Costs--Operating Fees
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    \37\ Note that, although there were compute hours during this 
period, data related to such compute hours are no longer available 
in current data.
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    The $21,085,485 in technology costs related to operating fees 
represent costs incurred with regard to activities of FCAT as the Plan 
Processor. Operating fees are those fees paid by CAT LLC to FCAT as the 
Plan Processor to operate and maintain the CAT and to perform business 
operations related to the system, including compliance, security, 
testing, training, communications with the industry (e.g., management 
of the FINRA CAT Helpdesk, FAQs, website and webinars) and program 
management as required by the CAT NMS Plan.
    FCAT was selected to assume the role of the successor Plan 
Processor. Prior to this selection, the Participants engaged

[[Page 10855]]

in discussions with two prior Bidders \38\ for the successor Plan 
Processor role. The Operating Committee formed a Selection Subcommittee 
in accordance with Section 4.12 of the CAT NMS Plan to evaluate and 
review Bids and to make a recommendation to the Operating Committee 
with respect to the selection of the successor Plan Processor. In an 
April 9, 2019 letter to the Commission, the Participants described the 
reasons for its selection of the successor Plan Processor:
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    \38\ The term ``Bidder'' is defined in Section 1.1 of the CAT 
NMS Plan.
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    The Selection Subcommittee considered factors including, but not 
limited to, the following, in recommending FINRA to the Operating 
Committee as the successor Plan Processor:

    a. FINRA's specialized technical expertise and capabilities in 
the area of broker-dealer technology;
    b. The need to appoint a successor Plan Processor with 
specialized expertise to develop, implement, and maintain the CAT 
System in accordance with the CAT NMS Plan and SEC Rule 613;
    c. FINRA's detailed proposal in response to CATLLC's recent 
inquiries; and
    d. FINRA's data query and analytics systems demonstration to the 
Participants.
Based on these and other factors, the Selection Subcommittee 
determined that FINRA was the most appropriate Bidder to become the 
successor Plan Processor.\39\
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    \39\ See Letter from Michael J. Simon, Chair, CAT NMS, LLC 
Operating Committee, to Brent J. Fields, Secretary, SEC, dated 
April. 9, 2019, https://www.sec.gov/divisions/marketreg/rule613-info-notice-of-plan-processor-selection-040919.pdf.

    On February 26, 2019, the Operating Committee (with FINRA recusing 
itself) voted to select FINRA as the successor Plan Processor pursuant 
to Section 6.1(t) of the CAT NMS Plan.\40\ On March 29, 2019, CAT LLC 
and FCAT (a wholly owned subsidiary of FINRA) entered into a Plan 
Processor Agreement pursuant to which FCAT would perform the functions 
and duties of the Plan Processor contemplated by the CAT NMS Plan, 
including the management and operation of the CAT.
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    \40\ See supra note 38.
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    Under the Plan Processor Agreement with FCAT, CAT LLC is required 
to pay FCAT a negotiated monthly fixed price for the operation of the 
CAT. This fixed price contract was negotiated on an arm's length basis 
with the goals of managing costs and receiving services required to 
comply with the CAT NMS Plan and Rule 613, taking into consideration a 
variety of factors, including the breadth of services provided and 
market rates for similar types of activity. The operating fees during 
the Pre-FAM Period were paid to FCAT by CAT LLC.
    From March 29, 2019 (the commencement of the Plan Processor 
Agreement with FCAT) through June 22, 2020 (the end of the Pre-FAM 
Period), the Plan Processor's activities with respect to the CAT 
included the following:
     Commenced user acceptance testing with market data 
provided by Exegy Incorporated (``Exegy''), a market data provider; 
\41\
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    \41\ The use of Exegy to provide market data, including the 
costs and market data provided, is discussed below in Section 
3(a)(2)(B)(i)(i).
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     Published Technical Specifications and related reporting 
scenarios documents for Phase 2a, 2b, and 2c reporting for Industry 
Members, after substantial engagement with SEC staff, Industry Members 
and Participants on the Technical Specifications;
     Facilitated testing for Phase 2a and 2b reporting for 
Industry Members;
     Began developing Technical Specifications and related 
reporting scenarios documents for Phase 2d reporting for Industry 
Members, after substantial engagement with SEC staff, Industry Members 
and Participants on the Technical Specifications;
     Published Central Repository Access Technical 
Specifications, and provided regulator access to test data from 
Industry Members;
     Facilitated Participant exchanges that support options 
market makers sending Quote Sent Time to the CAT;
     Facilitated the introduction of OPRA and Options NBBO 
Other Data to CAT;
     Addressed compliance items, including drafting CAT 
policies and procedures, and addressing requirements under Regulation 
SCI;
     Provided support to the Operating Committee, the 
Compliance Subcommittee and CAT working groups;
     Assisted with interpretive efforts and exemptive requests 
regarding the CAT NMS Plan;
     Oversaw the security of the CAT;
     Monitored the operation of the CAT, including with regard 
to Participant and Industry Member reporting;
     Provided support to subcontractors under the Plan 
Processor Agreement;
     Provided support in discussions with Participants, SEC and 
its staff;
     Operated the FINRA CAT Helpdesk, which is the primary 
source for answers to questions about CAT, including questions 
regarding: clock synchronization, firm reporting responsibilities, 
interpretive questions, technical specifications for reporting to CAT 
and more;
     Facilitated communications with the industry, including 
via FAQs, CAT Alerts, meetings, presentations and webinars;
     Administered the CAT website and all of its content; \42\ 
and
---------------------------------------------------------------------------

    \42\ The CAT website is https://www.catnmsplan.com.
---------------------------------------------------------------------------

     Provided technical support and assistance with 
connectivity, data access, and user support, including the use of CAT 
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
    The $2,072,908 in technology costs related to CAIS operating fees 
represent the fees paid for FCAT's subcontractor charged with the 
development and operation of CAT's Customer and Account Information 
System (``CAIS''). The CAT is required under the CAT NMS Plan to 
capture and store Customer Identifying Information and Customer Account 
Information in a database separate from the transactional database and 
to create a CAT-Customer-ID for each Customer.
    During the Pre-FAM Period, the CAIS-related services were provided 
by the Plan Processor through the Plan Processor's subcontractor, 
Kingland Systems Incorporation (``Kingland''). Kingland had experience 
operating in the securities regulatory technology space, and as a part 
of its proposal for acting as the Plan Processor for the CAT, FCAT 
selected Kingland as a subcontractor to provide certain CAIS-related 
services.
    Under the Plan Processor Agreement with FCAT, CAT LLC is required 
to pay to the Plan Processor the fees incurred by FCAT for CAIS-related 
services provided by FCAT through Kingland on a monthly basis. FCAT 
negotiated the fees for Kingland's CAIS-related services on an arm's 
length basis with the goals of managing costs and receiving services 
required to comply with the CAT NMS Plan, taking into consideration a 
variety of factors, including the services to be provided and market 
rates for similar types of activity. The fees for CAIS-related services 
during the Pre-FAM Period were paid by CAT LLC to FCAT. FCAT, in turn, 
paid Kingland. During the Pre-FAM Period, Kingland began development of 
the CAIS Technical Specifications and the building of CAIS. In 
addition, Kingland also worked on the build related to the CCID 
Alternative, an alternative approach to customer information that was 
not included in the CAT NMS Plan as

[[Page 10856]]

originally adopted.\43\ Furthermore, Kingland also worked on the 
acceleration of the reporting of large trader identifiers (``LTID'') 
earlier than originally contemplated during this period, in accordance 
with exemptive relief granted by the SEC.\44\
---------------------------------------------------------------------------

    \43\ For a discussion of the CCID Alternative, see Securities 
Exchange Act Release No. 88393 (March 17, 2020), 85 FR 16152 (March 
20, 2020).
    \44\ See Phased Reporting Exemptive Relief Order, 85 FR 23075, 
23079-80.
---------------------------------------------------------------------------

(d) Technology Costs--Change Request Fees
    The technology costs related to change request fees include costs 
related to certain modifications, upgrades or other changes to the CAT. 
Change requests are standard practice and necessary to reflect 
operational changes, including changes related to new market 
developments, such as new market participants. In general, if CAT LLC 
determines that a modification, upgrade or other changes to the 
functionality or service is necessary and appropriate, CAT LLC will 
submit a request for such a change to the Plan Processor. The Plan 
Processor will then respond to the request with a proposal for 
implementing the change, including the cost (if any) of such a change. 
CAT LLC then determines whether to approve the proposed change. The 
change request costs were paid by CAT LLC to FCAT. During the Pre-FAM 
Period, CAT LLC incurred costs of $141,346 related to change requests 
implemented by FCAT. Such change requests related to a development fee 
regarding the OPRA and SIP data feeds, and the reprocessing of certain 
exchange data.\45\
---------------------------------------------------------------------------

    \45\ Note that CAT LLC also has incurred costs related to 
specific Industry Members (e.g., reprocessing costs related to 
Industry Member reporting errors).
---------------------------------------------------------------------------

(e) Technology Costs--Capitalized Developed Technology Costs
    This category of costs includes capitalizable application 
development costs incurred in the development of the CAT. The 
capitalized developed technology costs for the Pre-FAM Period of 
$71,475,941 relate to technology provided by the Initial Plan Processor 
and the successor Plan Processor.
    Initial Plan Processor: Thesys CAT, LLC. The capitalized developed 
technology costs related to the Initial Plan Processor include costs 
incurred with regard to testing for Participant reporting, Participant 
reporting to the CAT, a security assessment of the CAT, the development 
of the billing function for the CAT, and a Plan Processor transition 
fee.
    On January 17, 2017, the Selection Committee of the CAT NMS Plan 
selected the Initial Plan Processor, Thesys Technologies, LLC, for the 
CAT NMS Plan pursuant to Article V of the CAT NMS Plan.\46\ The 
Participants utilized a request for proposal (``RFP'') to seek 
proposals to build and operate the CAT, receiving a number of proposals 
in response to the RFP. The Participants carefully reviewed and 
considered each of the proposals, including holding in-person meetings 
with each of the Bidders. After several rounds of review, the 
Participants selected the Initial Plan Processor in accordance with the 
CAT NMS Plan, taking into consideration that the Initial Plan Processor 
had experience operating in the securities regulatory technology space, 
among other considerations. On April 6, 2017, CAT LLC entered into an 
agreement with Thesys CAT LLC (``Thesys CAT''), a Thesys affiliate, to 
perform the functions and duties of the Plan Processor contemplated by 
the CAT NMS Plan, including the management and operation of the CAT. 
Under the agreement, CAT LLC would pay Thesys CAT a negotiated, fixed 
price fee for its role as the Initial Plan Processor. Effective January 
30, 2019, the Plan Processor Agreement with Thesys CAT was terminated, 
and FCAT was subsequently selected as the successor Plan Processor.
---------------------------------------------------------------------------

    \46\ Letter from the Participants to Brent J. Fields, Secretary, 
SEC, dated January 18, 2017, https://www.sec.gov/divisions/marketreg/rule613-info-notice-of-plan-processor-selection.pdf.
---------------------------------------------------------------------------

    From January 17, 2017 through January 30, 2019, the time in which 
the Thesys CAT was engaged for the CAT, but excluding the period from 
November 15, 2017 through November 15, 2018, the Initial Plan Processor 
engaged in various activities with respect to the CAT, including 
preparing iterative drafts of Participant Technical Specifications, 
Industry Member Technical Specifications and the Central Repository 
Access Technical Specifications. Thesys CAT initiated and maintained 
the Participant reporting per the Participant Technical Specifications. 
In addition, Thesys CAT also developed CAT technology, addressed 
compliance items, including drafting CAT policies and procedures, 
addressing Regulation SCI requirements, establishing a CAT Compliance 
Officer and a Chief Information Security Officer, and addressed 
security-related matters for the CAT. Furthermore, Thesys CAT performed 
transition services related to the transition from Thesys CAT to FCAT 
as the successor Plan Processor from January 30, 2019 through April 15, 
2019.
    Successor Plan Processor: FCAT. The capitalized developed 
technology costs related to FCAT include: (1) development costs 
incurred during the application development stage to meet various 
agreed-upon milestones regarding the CAT, including the completion of 
go-live functionality related to options ingestion and validation, 
equities regulatory services agreement query tool updates and unlinked 
options data query, options linkages release, Industry Member Phase 2a 
file submission and data integrity (including error corrections), and 
Industry Member testing, including reporting relationships, ATS order 
type management, basic reporting statistics, SFTP data integrity 
feedback and error correction; (2) costs related to certain 
modifications, upgrades, or other changes to the CAT that were not 
contemplated by the agreement between CAT LLC and the Plan Processor, 
including a one-time development fee for a secure analytics workspace, 
a one-time development fee of an Industry Member connectivity solution, 
and a one-time development fee for the acceleration of multi-factor 
authentication; (3) CAIS implementation fees; and (4) license fees.
(f) Legal Costs
    The legal costs of $19,674,463 represent the fees paid for legal 
services provided by two law firms, Wilmer Cutler Pickering Hale and 
Dorr LLP (``WilmerHale'') and Pillsbury Winthrop Shaw Pittman LLP 
(``Pillsbury''), during the Pre-FAM Period. The legal costs exclude 
those costs incurred from November 15, 2017 through November 15, 2018.
    Law Firm: WilmerHale. Following the adoption of Rule 613, the 
Participants determined it was necessary to engage external legal 
counsel to advise the Participants with respect to corporate and 
regulatory legal matters related to the CAT, including drafting and 
developing the CAT NMS Plan. The Participants considered a variety of 
factors in their analysis of prospective law firms, including (1) the 
firm's qualifications, resources and expertise, (2) the firm's relevant 
experience and understanding of the regulatory matters raised by the 
CAT and in advising on matters of similar scope, (3) the composition of 
the legal team, and (4) professional fees. Following a series of 
interviews, the Participants acting as a consortium determined that 
WilmerHale was well qualified given the balance of

[[Page 10857]]

these considerations and engaged WilmerHale in February 2013.
    WilmerHale's billing rates are negotiated on an annual basis and 
are determined with reference to the rates charged by other leading law 
firms for similar work. The Participants assess WilmerHale's 
performance and review prospective budgets and staffing plans submitted 
by WilmerHale on an annual basis. WilmerHale's compensation 
arrangements are reasonable and appropriate, and in line with the rates 
charged by other leading law firms for similar work.
    The legal costs for WilmerHale during the Pre-FAM Period included 
costs incurred from 2013 until June 22, 2020 to address corporate and 
regulatory legal matters related to the CAT. The legal fees for this 
law firm during the period from February 2013 until the formation of 
the CAT NMS, LLC on November 15, 2016 were paid directly by the 
exchanges and FINRA to WilmerHale. After the formation of CAT NMS LLC, 
the legal fees were paid by CAT LLC to WilmerHale.
    After WilmerHale was engaged in 2013 through the end of the Pre-FAM 
Period on June 22, 2020 (excluding the legal costs from November 15, 
2017 through November 15, 2018), WilmerHale provided legal assistance 
to the CAT on a variety of matters, including with regard to the 
following:
     Analyzed various legal matters associated with the 
Selection Plan, and drafted an amendment to Selection Plan;
     Assisted with the RFP and bidding process for the CAT Plan 
Processor;
     Analyzed legal matters related to the Development Advisory 
Group (``DAG'');
     Drafted the CAT NMS Plan, analyzed various items related 
to the CAT NMS Plan, and responded to comment letters on CAT NMS Plan;
     Provided legal support for the formation of the legal 
entity, the governance of the CAT, including governance support prior 
to the adoption of the CAT NMS Plan, which involved support for the 
full committee of exchanges and FINRA as well as subcommittees of this 
group (e.g., Joint Subcommittee Group, Technical, Industry Outreach, 
Cost and Funding and Other Products) and the DAG, governance support 
during the transition to the new governance structure under the CAT NMS 
Plan; and governance support after the adoption of the CAT NMS Plan, 
which involved support for the Operating Committee, Advisory Committee, 
Compliance Subcommittee and CAT working groups;
     Assisted with the development of the CAT funding model and 
drafted related amendments of the CAT NMS Plan and related filings;
     Negotiated and drafted the plan processor agreements with 
the Initial Plan Processor and the successor Plan Processor;
     Provided assistance with compliance with Regulation SCI;
     Assisted with clock synchronization study;
     Provided assistance with respect to the establishment of 
CAT security;
     Drafted exemptive requests from CAT NMS Plan requirements, 
including with regard to options market maker quotes, Customer IDs, CAT 
Reporter IDs, linking allocations to executions, CAT reporting 
timeline, FDIDs, customer and account information, timestamp 
granularity, small industry members, data facility reporting and 
linkage, allocation reports, SRO-assigned market participant 
identifiers and cancelled trade indicators, thereby seeking to 
implement changes that would be cost effective and benefit of [sic] 
Industry Members and Participants;
     Assisted with the Implementation Plan required pursuant to 
Section 6.6(c)(i) of the CAT NMS Plan;
     Provided advice regarding CAT policies and procedures;
     Analyzed the SEC's amendment of the CAT NMS Plan regarding 
financial accountability;
     Provided interpretations of and related to the CAT NMS 
Plan;
     Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretive and 
implementation issues; and
     Assisted with third party vendor agreements.
    Law Firm: Pillsbury. The legal costs for CAT during the Pre-FAM 
Period include costs related to the legal services performed by 
Pillsbury. The Participants interviewed this law firm as well as other 
potential law firms to provide legal assistance regarding certain 
liability matters. After considering a variety of factors in its 
analysis, including the relevant expertise and fees of the firm, CAT 
LLC determined to hire Pillsbury in April 2019. The hourly fee rates 
for this law firm were in line with market rates for specialized legal 
expertise. The legal fees were paid by CAT LLC to Pillsbury. The legal 
costs for Pillsbury during the Pre-FAM Period included costs incurred 
from April 2019 until June 22, 2020 to address legal matters regarding 
the agreements between CAT Reporters and CAT LLC concerning certain 
terms associated with CAT Reporting (the ``Reporter Agreement''). 
During that period, Pillsbury advised CAT LLC regarding applicable 
legal matters, participated in negotiations between the Participants 
and Industry Members, participated in meetings with senior SEC staff, 
the Chairman, and Commissioners, represented CAT LLC and the 
Participants in an SEC administrative proceeding, and drafted a 
proposed amendment to the CAT NMS Plan regarding liability matters. 
Liability issues related to the CAT are important matters that needed 
to be resolved and clarified. CAT LLC's efforts to seek such resolution 
and clarity work to the benefit of Participants, Industry Members and 
other market participants. Moreover, litigation involving CAT LLC is an 
expense of operating the CAT, and, therefore, is appropriately an 
obligation of both Participants and Industry Members under the CAT 
Funding Model.
(g) Consulting Costs
    The consulting costs of $17,013,414 represent the fees paid to the 
consulting firm Deloitte & Touche LLP (``Deloitte'') as project manager 
during the Pre-FAM Period, from October 2012 until June 22, 2020. These 
consulting costs include costs for advisory services related to the 
operation of the CAT, and meeting facilitation and communications 
coordination, vendor support and financial analyses.
    To help facilitate project management given the unprecedented 
complexity and scope of the CAT project, the Participants determined it 
was necessary to engage a consulting firm to assist with the CAT 
project in 2012, following the adoption of Rule 613. A variety of 
factors were considered in the analysis of prospective consulting 
firms, including (1) the firm's qualifications, resources, and 
expertise, (2) the firm's relevant experience and understanding of the 
regulatory issues raised by the CAT and in coordinating matters of 
similar scope, (3) the composition of the consulting team, and (4) 
professional fees. Following a series of interviews, the exchanges and 
FINRA as a consortium determined that Deloitte was well qualified given 
the balance of these considerations and engaged Deloitte on October 1, 
2012.
    Deloitte's fee rates are negotiated on an annual basis and are in 
line with market rates for this type of specialized consulting work. 
CAT LLC assesses Deloitte's performance and reviews prospective budgets 
and staffing plans submitted by Deloitte on an annual basis. Deloitte's 
compensation arrangements are reasonable and appropriate, and in line 
with the rates

[[Page 10858]]

charged by other leading consulting firms for similar work.
    The consulting costs for CAT during the period from 2012 until the 
formation of the CAT NMS, LLC were paid directly by the Participants to 
Deloitte. After the formation of CAT NMS, LLC, the consulting fees were 
paid by CAT LLC to Deloitte. CAT LLC reviewed the consulting fees each 
month and approved the invoices.
    After Deloitte was hired in 2012 through the end of the Pre-FAM 
Period on June 22, 2020 (excluding the consulting costs from November 
15, 2017 through November 15, 2018), Deloitte provided a variety of 
consulting services, including the following:
     Established and implemented program operations for the CAT 
project, including the program managment [sic] office and workstream 
design;
     Assisted with the Plan Processor selection process, 
including but not limited to, the development of the RFP and the bidder 
evaluation process, and facilitation and consolidation of the 
Participant's independent reviews;
     Assisted with the development and drafting of the CAT NMS 
Plan, including conducting cost-benefit studies, analyzing OATS and CAT 
requirements, and drafting appendices to the Plan;
     Assisted with cost and funding-related activities for the 
CAT, including the development of the CAT funding model and assistance 
with loans and the CAT bank account for CAT funding;
     Provided governance support to the CAT, including 
governance support prior to the adoption of the CAT NMS Plan, which 
involved support for the full committee of exchanges and FINRA as well 
as subcommittees of this group (e.g., Joint Subcommittee Group, 
Technical, Industry Outreach, Cost and Funding and Other Products) and 
the DAG, governance support during the transition to the new governance 
structure under the CAT NMS Plan and governance support after the 
adoption of the CAT NMS Plan, which involved support for the Operating 
Committee, Advisory Committee, Compliance Subcommittee and CAT working 
groups;
     Provided support to the Operating Committee, the Chair of 
the Operating Committee and the Leadership Team, including project 
management support, coordination and planning for meetings and 
communications, and interfacing with law firms and the SEC;
     Assisted with industry outreach and communications 
regarding the CAT, including assistance with industry outreach events, 
the development of the CAT website, frequently asked questions, and 
coordinating with the CAT LLC's public relations firm;
     Provided support for updating the SEC on the progress of 
the development of the CAT;
     Provided active planning and coordination with and support 
for the Initial Plan Processor with regard to the development of the 
CAT, and reported to the Participants on the progress;
     Coordinated efforts regarding the selection of the 
successor Plan Processor;
     Assisted with the transition from the Initial Plan 
Processor to the successor Plan Processor, including support for the 
Operating Committee and successor Plan Processor for the new role; and
     Provided support for third party vendors for the CAT, 
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
    The insurance costs of $880,419 represent the cost incurred for 
insurance for CAT during the Pre-FAM Period. Commencing in 2020, CAT 
LLC performed an evaluation of various potential alternatives for CAT 
insurance policies, which included engaging in discussions with 
different insurance companies and conducting cost comparisons of 
various alternative approaches to insurance. Based on an analysis of a 
variety of factors, including coverage and premiums, CAT LLC determined 
to purchase cyber security liability insurance, directors' and 
officers' liability insurance, and errors and omissions liability 
insurance from USI Insurance Services LLC (``USI''). Such policies are 
standard for corporate entities, and cyber security liability insurance 
is important for the CAT System. The annual premiums for these policies 
were competitive for the coverage provided. The annual premiums were 
paid by CAT LLC to USI.
(i) Professional and Administration Costs
    In adopting the CAT NMS Plan, the Commission amended the Plan to 
add a requirement that CAT LLC's financial statements be prepared in 
compliance with GAAP, audited by an independent public accounting firm, 
and made publicly available.\47\ The professional and administration 
costs include costs related to accounting and accounting advisory 
services to support the operating and financial functions of CAT, 
financial statement audit services by an independent accounting firm, 
preparation of tax returns, and various cash management and treasury 
functions. In addition, professional and administration costs for the 
Pre-FAM Period include costs related to the receipt of market data and 
a security assessment. The costs for these professional and 
administration services were $1,082,036 for the Pre-FAM Period.
---------------------------------------------------------------------------

    \47\ Section 9.2 of the CAT NMS Plan.
---------------------------------------------------------------------------

    Financial Advisory Firm: Anchin Accountants & Advisors 
(``Anchin''). CAT LLC determined to hire a financial advisory firm, 
Anchin, to assist with financial matters for the CAT in April 2018. CAT 
LLC interviewed Anchin as well as other potential financial advisory 
firms to assist with the CAT project, considering a variety of factors 
in its analysis, including the firm's relevant expertise and fees. The 
hourly fee rates for this firm were in line with market rates for these 
financial advisory services. The fees for these services were paid by 
CAT LLC to Anchin.
    After Anchin was hired in April 2018 through the end of the Pre-FAM 
Period on June 22, 2020 (excluding the period from April 2018 through 
November 15, 2018), Anchin provided a variety of services, including 
the following:
     Developed, updated and maintained internal controls;
     Provided cash management and treasury functions;
     Facilitated bill payments;
     Provided monthly bookkeeping;
     Reviewed vendor invoices and documentation in support of 
cash disbursements;
     Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
     Addressed not-for-profit tax and accounting 
considerations;
     Prepared tax returns;
     Addressed various accounting, financial and operating 
inquiries from Participants;
     Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
     Addressed accounting and financial reporting matters 
relating to the transition from CAT NMS, LLC to Consolidated Audit 
Trail, LLC, including supporting the dissolution of CAT NMS, LLC;
     Supported compliance with the CAT NMS Plan;
     Worked with and provided support to the Operating 
Committee and various CAT working groups;
     Prepared monthly, quarterly and annual financial 
statements;
     Supported the annual financial statement audits by an 
independent auditor;

[[Page 10859]]

     Reviewed historical costs from inception; and
     Provided accounting and financial information in support 
of SEC filings.
    Accounting Firm: Grant Thornton LLP (``Grant Thornton''). In 
February 2020, CAT LLC determined to engage an independent accounting 
firm, Grant Thornton, to complete the audit of CAT LLC's financial 
statements, in accordance with the requirements of the CAT NMS Plan. 
CAT LLC interviewed this firm as well as another potential accounting 
firm to audit CAT LLC's financial statements, considering a variety of 
factors in its analysis, including the relevant expertise and fees of 
each of the firms. CAT LLC determined that Grant Thornton was well-
qualified for the proposed role given the balance of these 
considerations. Grant Thornton's fixed fee rate compensation 
arrangement was reasonable and appropriate, and in line with the market 
rates charged for these types of accounting services. The fees for 
these services were paid by CAT LLC to Grant Thornton.
    Market Data Provider: Exegy. The professional and administrative 
costs for the Pre-FAM Period included costs related to the receipt of 
certain market data for the CAT pursuant to an agreement with the CAT 
LLC, and then with FCAT. Exegy provided SIP Data required by the CAT 
NMS Plan.
    After performing an analysis of the available market data vendors 
to confirm that the data provided met the SIP Data requirements of the 
CAT NMS Plan and comparing the costs of the vendors providing the 
required SIP Data, CAT LLC determined to purchase market data from 
Exegy from July 2018 through March 2019. CAT LLC determined that, 
unlike certain other vendors, Exegy provided market data that included 
all data elements required by the CAT NMS Plan.\48\ In addition, the 
fees were reasonable and in line with market rates for the market data 
received. Accordingly, the professional and administrative costs for 
the Pre-FAM Period include the Exegy costs from November 2018 through 
March 2019. The cost of the market data was reasonable for the market 
data received. The fees for the market data were paid directly by CAT 
LLC to Exegy.
---------------------------------------------------------------------------

    \48\ See Section 6.5(a)(ii) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Upon the termination of the contract between CAT LLC and Exegy, 
FCAT entered into a contract with Exegy to purchase the required market 
data from Exegy in July 2019. All costs under the contract were treated 
as a direct pass through cost to CAT LLC. Therefore, the fees for the 
market data were paid by CAT LLC to FCAT, who, in turn, paid Exegy for 
the market data.
    Security Assessment: RSM US LLP (``RSM''). The operating costs for 
the Pre-FAM Period include costs related to a third party security 
assessment of the CAT performed by RSM. The assessment was designed to 
verify and validate the effective design, implementation, and operation 
of the controls specified by NIST Special Publication 800-53, Revision 
4 and related standards and guidelines. Such a security assessment is 
in line with industry practice and important given the data included in 
the CAT. CAT LLC determined to engage RSM to perform the security 
assessment, after considering a variety of factors in its analysis, 
including the firm's relevant expertise and fees. The fees were 
reasonable and in line with market rates for such an assessment. RSM 
performed the assessment from October 2018 through December 2018. 
Accordingly, the costs for the Pre-FAM Period include the costs 
incurred in November and December 2018. The cost for the security 
assessment were paid directly to RSM by CAT LLC.
(j) Public Relations Costs
    The public relations costs of $224,669 represent the fees paid to 
public relations firms during the Pre-FAM Period for professional 
communications services to CAT, including media relations consulting, 
strategy and execution. By engaging a public relations firm, CAT LLC 
was better positioned to understand and address CAT matters to the 
benefit of all market participants. Specifically, the public relations 
firms provided services related to communications with the public 
regarding the CAT, including monitoring developments related to the CAT 
(e.g., congressional efforts, public comments and reaction to 
proposals, press coverage of the CAT), reporting such developments to 
CAT LLC, and drafting and disseminating communications to the public 
regarding such developments as well as reporting on developments 
related to the CAT (e.g., amendments to the CAT NMS Plan). Public 
relations services were important for various reasons, including 
monitoring comments made by market participants about CAT and 
understanding issues related to the CAT discussed on the public record.
    The services performed by each of the public relations firms were 
comparable. The fees for such services were reasonable and in line with 
market rates. Only one public relations firm was engaged at a time; the 
three firms were engaged sequentially as the primary public relations 
contact moved among the three firms during this time period.
    Public Relations Firm: Peppercomm, Inc. (``Peppercomm''). The 
national securities exchanges and FINRA, acting as a consortium, 
determined to hire the public relations firm Peppercomm in October 2014 
and continued to engage this firm through September 2017. The exchanges 
and FINRA made this engagement decision after considering a variety of 
factors in its analysis, including the firm's relevant expertise and 
fees. The fee rates for this public relations firm were negotiated on 
an arm's length basis and were in line with market rates for these 
types of services. The public relations costs during the period from 
October 2014 until the formation of the CAT NMS LLC were paid directly 
by the exchanges and FINRA to the public relations firm. After the 
formation of CAT NMS, LLC, the consulting fees were paid by CAT LLC.
    Public Relations Firm: Sloane & Company (``Sloane''). CAT LLC 
determined to hire a new public relations firm, Sloane, in March 2018, 
based on, among other things, their expertise and the primary contact's 
history with the project. The fee rates for this public relations firm 
were in line with market rates for these types of services. The fees 
during the Pre-FAM Period were paid by CAT LLC to Sloane. CAT LLC 
continued the engagement with Sloane until February 2020.
    Public Relations Firm: Peak Strategies. CAT LLC determined to hire 
a new public relations firm, Peak Strategies, in March 2020, based on, 
among other things, their expertise and the primary contact's history 
with the project. The fee rates for this public relations firm were in 
line with market rates for these types of services. The fees during the 
Pre-FAM Period were paid by CAT LLC to Peak Strategies.
(ii) Historical CAT Costs Incurred in Financial Accountability 
Milestone Period 1
    Historical CAT Costs 1 would include costs incurred by CAT and 
already funded by the Participants during Period 1 of the Financial 
Accountability Milestones (``FAM Period 1''),\49\ which covers the 
period from June 22, 2020-July 31, 2020. Historical CAT Costs 1 would 
include costs for FAM Period 1 of $6,377,343. The Participants would 
remain responsible for one-third of this cost (which they have 
previously paid) ($2,125,781), and Industry Members would be 
responsible for the remaining two-thirds, with CEBBs paying one-

[[Page 10860]]

third ($2,125,781) and CEBSs paying one-third ($2,125,781). The 
following table breaks down Historical CAT Costs 1 for FAM Period 1 
into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT 
NMS Plan.
---------------------------------------------------------------------------

    \49\ Section 11.6(a)(i)(A) of the CAT NMS Plan.
    [GRAPHIC] [TIFF OMITTED] TN13FE24.245
    
    By the completion of FAM Period 1, CAT LLC was required to 
implement the reporting by Industry Members (excluding Small Industry 
Members that are not OATS reporters) of equities transaction data and 
options transaction data, excluding Customer Account Information, 
Customer-ID and Customer Identifying Information.\52\ CAT LLC completed 
the requirements of FAM Period 1 by July 31, 2020. The following 
describes the costs for each of the categories for FAM Period 1.
---------------------------------------------------------------------------

    \50\ As discussed above, with respect to certain costs that were 
``appropriately excluded,'' such excluded costs relate to the 
amortization of capitalized technology costs, which are amortized 
over the life of the Plan Processor Agreement. As such costs have 
already been otherwise reflected in the filing, their inclusion 
would double count the capitalized technology costs. In addition, 
amortization is a non-cash expense.
    \51\ The costs described in this table of costs for FAM Period 1 
were calculated based upon CAT LLC's review of applicable bills and 
invoices and related financial statements. CAT LLC financial 
statements are available on the CAT website.
    \52\ See definition of ``Initial Industry Member Core Equity and 
Options Reporting'' in Section 1.1 of the CAT NMS Plan.
---------------------------------------------------------------------------

(a) Technology Costs--Cloud Hosting Services
    CAT LLC continued to utilize AWS in FAM Period 1 to provide a broad 
array of cloud hosting services for the CAT, including data ingestion, 
data management, and analytic tools. AWS continued to provide storage 
services, databases, compute services and other services (such as 
networking, management tools and DevOps tools), as well as various 
environments for CAT, such as development, performance testing, test, 
and production environments, during the FAM 1 Period. Accordingly, the 
$2,642,122 in technology costs for cloud hosting services represent 
costs incurred for services provided by AWS, as the cloud services 
provider, during FAM Period 1. The fee arrangement for AWS described 
above with regard to the Pre-FAM Period continued in place during FAM 
Period 1 pursuant to the Plan Processor Agreement. Moreover, CAT LLC 
continued to believe that AWS's maturity in the cloud services space as 
well as the significant cost and time necessary to move the CAT to a 
different cloud services provider supported the continued engagement of 
AWS.
    The cost for AWS cloud services for the CAT continued to be a 
function of the volume of CAT Data. During the FAM 1 Period, the volume 
of CAT Data continued to far exceed the original predictions for the 
CAT as set forth in the CAT NMS Plan. During this period, data 
submitted to the CAT included options and equities Participant Data, 
Phase 2a and Phase 2b Industry Member Data (including certain linkages) 
as well as SIP Data, reference data and other types of Other Data. The 
following chart provides data regarding the average daily volume, 
cumulative total events, total compute hours and storage footprint of 
the CAT during FAM Period 1.\53\
---------------------------------------------------------------------------

    \53\ Note that the volume data described in this table does not 
include CAIS data.

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

[[Page 10861]]

[GRAPHIC] [TIFF OMITTED] TN13FE24.246

(b) Technology Costs--Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, FCAT 
continued in its role as the Plan Processor for the CAT during FAM 
Period 1. Accordingly, the $1,099,680 in technology costs for operating 
fees represent costs incurred for the services provided by FCAT under 
the Plan Processor Agreement during FAM Period 1. The fee arrangement 
for FCAT described above with regard to the Pre-FAM Period continued in 
place during FAM Period 1 pursuant to the Plan Processor Agreement. 
During FAM Period 1, FCAT's activities with respect to the CAT included 
the following:
     Published iterative drafts of Technical Specifications for 
Phase 2d, after substantial engagement with SEC staff, Industry Members 
and Participants on the Technical Specifications;
     Published iterative drafts of CAIS Technical 
Specifications, after substantial engagement with SEC staff, Industry 
Members and Participants on the Technical Specifications;
     Facilitated Industry Member reporting of Quote Sent Time 
on Options Market Maker quotes;
     Addressed compliance items, including drafting CAT 
policies and procedures, and addressing Regulation SCI requirements;
     Provided support to the Operating Committee, the 
Compliance Subcommittee and CAT working groups;
     Assisted with interpretive efforts and exemptive requests 
regarding the CAT NMS Plan;
     Oversaw the security of the CAT;
     Monitored the operation of the CAT, including with regard 
to Participant and Industry Member reporting;
     Provided support to subcontractors under the Plan 
Processor Agreement;
     Provided support in discussions with Participants and the 
SEC and its staff;
     Operated the FINRA CAT Helpdesk;
     Facilitated communications with the industry, including 
via FAQs, CAT Alerts, meetings, presentations and webinars;
     Administered the CAT website and all of its content; and
     Provided technical support and assistance with 
connectivity, data access, and user support, including the use of CAT 
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, Kingland 
continued in its role as a subcontractor for the development and 
implementation of CAIS during FAM Period 1. Accordingly, the $254,998 
in technology costs for CAIS operating fees represent costs incurred 
for services provided by Kingland during FAM Period 1. The fee 
arrangement for Kingland described above with regard to the Pre-FAM 
Period continued in place during FAM Period 1 pursuant to the Plan 
Processor Agreement. During FAM Period 1, Kingland continued the 
development of the CAIS Technical Specifications and building of CAIS. 
In addition, Kingland continued to work on the CAIS Technical 
Specifications and build related to CCID Alternative, as well as the 
acceleration of the reporting of LTIDs.
(d) Technology Costs--Change Request Fees
    CAT LLC did not incur costs related to change requests during FAM 
Period 1.
(e) Technology Costs--Capitalized Developed Technology Costs
    Capitalized developed technology costs for FAM Period 1 of 
$1,684,870 include capitalizable application development costs incurred 
in the development of the CAT by FCAT. Such costs include: (1) costs 
related to certain modifications, upgrades, or other changes to the CAT 
that were not contemplated by the agreement between CAT LLC and the 
Plan Processor, including separate production and industry test 
entitlements, and reprocessing of exchange event

[[Page 10862]]

timestamps; (2) implementation fees; and (3) license fees.
(f) Legal Costs
    The legal costs of $481,687 represent the fees paid for legal 
services provided by two law firms, WilmerHale and Pillsbury during FAM 
Period 1.
    Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during 
FAM Period 1 based on, among other things, their expertise and long 
history with the project. The hourly fee rates for this law firm were 
in line with market rates for specialized legal expertise. The legal 
fees during FAM Period 1 were paid by CAT LLC to WilmerHale. During FAM 
Period 1, WilmerHale provided legal assistance to the CAT including 
with regard to the following:
     Assisted with the development of the CAT funding model and 
drafted related amendments and fee filings;
     Drafted exemptive requests from CAT NMS Plan requirements 
regarding, for example, verbal activity, options market maker quote 
sent time, TRF linkages, and allocations;
     Provided interpretations related to CAT NMS Plan 
requirements, including the Financial Accountability Milestone 
amendment;
     Assisted with compliance with Regulation SCI;
     Provided support for the Operating Committee, Compliance 
Subcommittee, working groups and Leadership Team, including with regard 
to meetings with the SEC staff;
     Assisted with the drafting of the Implementation Plan 
required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
     Assisted with communications and presentations for the 
industry regarding CAIS;
     Drafted SRO rule filings related to the CAT Compliance 
Rule;
     Provided support for Compliance Subcommittee, including 
with regard to response to OCIE examinations and the annual assessment;
     Provided guidance regarding CAT technical specifications;
     Assisted with third party vendor agreements; and
     Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretive and 
implementation issues.
    Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during 
FAM Period 1 based on, among other things, their expertise and history 
with the project. The hourly fee rates for this law firm were in line 
with market rates for specialized legal expertise. The legal fees 
during FAM Period 1 were paid by CAT LLC to Pillsbury. During FAM 
Period 1, Pillsbury provided legal assistance to the CAT regarding the 
CAT Reporter Agreement. During that period, Pillsbury advised CAT LLC 
regarding applicable legal matters and drafted a proposed amendment to 
the CAT NMS Plan regarding liability matters. Liability issues related 
to the CAT are important matters that needed to be resolved and 
clarified. CAT LLC's efforts to seek such resolution and clarity work 
to the benefit of Participants, Industry Members and other market 
participants.
(g) Consulting Costs
    The consulting costs of $137,209 represent the fees paid to 
Deloitte as project manager during FAM Period 1. CAT LLC continued to 
employ Deloitte during FAM Period 1 based on, among other things, their 
expertise and cumulative experience with the CAT. The fee rates for 
Deloitte during FAM Period 1 were negotiated and in line with market 
rates for this type of specialized consulting work. The consulting fees 
during FAM Period 1 were paid by CAT LLC to the consulting firm. CAT 
LLC reviewed the consulting fees each month and approved the invoices. 
During FAM Period 1, Deloitte's CAT-related activities included the 
following:
     Implemented program operations for the CAT project;
     Provided support to the Operating Committee, the Chair of 
the Operating Committee and the Leadership Team, including project 
management support, coordination and planning for meetings and 
communications, and interfacing with law firms and the SEC;
     Assisted with cost and funding matters for the CAT, 
including the development of the CAT funding model and assistance with 
loans and the CAT bank account for CAT funding;
     Provided support for updating the SEC on the progress of 
the development of the CAT;
     Assisted with the transition from the Initial Plan 
Processor to the successor Plan Processor; and
     Provided support for third party vendors for the CAT, 
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
    Although insurance was in effect during FAM Period 1, CAT LLC did 
not incur costs related to insurance during FAM Period 1.
(i) Professional and Administration Costs
    Financial Advisory Firm: Anchin. The professional and 
administration costs of $69,077 represent the fees paid to Anchin 
during FAM Period 1. CAT LLC continued to employ Anchin during FAM 
Period 1 based on, among other things, their expertise and history with 
the project. The hourly fee rates for this firm were in line with 
market rates for these type of financial advisory services. The fees 
for these services during FAM Period 1 were paid by CAT LLC to Anchin. 
During FAM Period 1, Anchin provided a variety of services, including 
the following:
     Maintained of [sic] internal controls;
     Provided cash management and treasury functions;
     Facilitated bill payments;
     Provided monthly bookkeeping;
     Reviewed vendor invoices and documentation in support of 
cash disbursements;
     Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
     Addressed various accounting, financial reporting and 
operating inquiries from Participants;
     Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
     Supported compliance with the CAT NMS Plan;
     Worked with and provided support to the Operating 
Committee and various CAT working groups; and
     Prepared monthly and quarterly financial statements.
(j) Public Relations Costs
    The public relations costs of $7,700 represent the fees paid to 
Peak Strategies during FAM Period 1. CAT LLC continued to employ Peak 
Strategies during FAM Period 1 based on, among other things, their 
expertise and history with the project. The fee rates for this firm 
were reasonable and in line with market rates for these types of 
services. The fees for these services during FAM Period 1 were paid by 
CAT LLC to Peak Strategies. During FAM Period 1, Peak Strategies 
continued to provide professional communications services to CAT LLC, 
including media relations consulting, strategy and execution. 
Specifically, the public relations firm provided services related to 
communications with the public regarding the CAT, including monitoring 
developments related to the CAT (e.g., congressional efforts, public 
comments and reaction to proposals, press coverage of the CAT), 
reporting such developments to CAT LLC, and drafting and disseminating 
communications to the public regarding such developments as well as 
reporting

[[Page 10863]]

on developments related to the CAT (e.g., amendments to the CAT NMS 
Plan). As discussed above, such public relations services were 
important for various reasons, including monitoring comments made by 
market participants about the CAT and understanding issues related to 
the CAT discussed on the public record. By engaging a public relations 
firm, CAT LLC was better positioned to understand and address CAT 
matters to the benefit of all market participants.
(iii) Historical CAT Costs Incurred in Financial Accountability 
Milestone Period 2
    Historical CAT Costs 1 would include costs incurred by CAT LLC and 
already funded by Participants during Period 2 of the Financial 
Accountability Milestones (``FAM Period 2''),\54\ which covers the 
period from August 1, 2020-December 31, 2020. Historical CAT Costs 1 
would include costs for FAM Period 2 of $42,976,478. The Participants 
would remain responsible for one-third of this cost (which they have 
previously paid) ($14,325,493), and Industry Members would be 
responsible for the remaining two-thirds, with CEBBs paying one-third 
($14,325,493) and CEBSs paying one-third ($14,325,493). The following 
table breaks down Historical CAT Costs 1 for FAM Period 2 into the 
categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS 
Plan.
---------------------------------------------------------------------------

    \54\ Section 11.6(a)(i)(B) of the CAT NMS Plan.
    [GRAPHIC] [TIFF OMITTED] TN13FE24.247
    
    By the completion of FAM Period 2, CAT LLC was required to 
implement the following with regard to the CAT:
---------------------------------------------------------------------------

    \55\ As discussed above, with respect to certain costs that were 
``appropriately excluded,'' such excluded costs relate to the 
amortization of capitalized technology costs, which are amortized 
over the life of the Plan Processor Agreement. As such costs have 
already been otherwise reflected in the filing, their inclusion 
would double count the capitalized technology costs. In addition, 
amortization is a non-cash expense.
    \56\ The costs described in this table of costs for FAM Period 2 
were calculated based upon CAT LLC's review of applicable bills and 
invoices and related financial statements. CAT LLC financial 
statements are available on the CAT website.

    (a) Industry Member reporting (excluding reporting by Small 
Industry Members that are not OATS reporters) for equities 
transactions, excluding Customer Account Information, CustomerID, 
and Customer Identifying Information, is developed, tested, and 
implemented at a 5% Error Rate or less and with sufficient intra-
firm linkage, inter-firm linkage, national securities exchange 
linkage, and trade reporting facilities linkage to permit the 
Participants and the Commission to analyze the full lifecycle of an 
order across the national market system, excluding linkage of 
representative orders, from order origination through order 
execution or order cancellation; and (b) the query tool 
functionality required by Section 6.10(c)(i)(A) and Appendix D, 
Sections 8.1.1-8.1.3 and Section 8.2.1 incorporates the Industry 
Member equities transaction data described in condition (a) and is 
available to the Participants and to the Commission.\57\
---------------------------------------------------------------------------

    \57\ See definition of ``Full Implementation of Core Equity 
Reporting Requirements'' in Section 1.1 of the CAT NMS Plan.

CAT LLC completed the requirements of FAM Period 2 by December 31, 
2020. The following describes the costs for each of the categories for 
FAM Period 2.
(a) Technology Costs--Cloud Hosting Services
    CAT LLC continued to utilize AWS in FAM Period 2 to provide a broad 
array of cloud hosting services for the CAT, including data ingestion, 
data management, and analytic tools. AWS continued to provide storage 
services, databases, compute services and other services (such as 
networking, management tools and DevOps tools), as well as various 
environments for CAT, such as development, performance testing, test, 
and production environments, during the FAM 2 Period. Accordingly, the 
$20,709,212 in technology costs for cloud hosting services represent 
costs incurred for services provided by AWS, as the cloud services 
provider, during FAM Period 2. The fee arrangement for AWS described 
above with regard to the Pre-FAM Period and FAM Period 1 continued in 
place during FAM Period 2 pursuant to the Plan Processor Agreement.

[[Page 10864]]

    The cost for AWS cloud services for the CAT continued to be a 
function of the volume of CAT Data. During the FAM 2 Period, the volume 
of CAT Data continued to far exceed the original predictions for the 
CAT as set forth in the CAT NMS Plan. During this period, data 
submitted to the CAT included options and equities Participant Data, 
Phase 2a and Phase 2b Industry Member Data (including certain linkages) 
as well as SIP Data, and Other Data, including reference data. In 
addition, Industry Members began reporting LTID account information. 
The following chart provides data regarding the average daily volume, 
cumulative total events, total compute hours and storage footprint of 
the CAT during FAM Period 2.\58\
---------------------------------------------------------------------------

    \58\ Note that the volume data described in this table does not 
include CAIS data.
[GRAPHIC] [TIFF OMITTED] TN13FE24.248

(b) Technology Costs--Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, FCAT 
continued in its role as the Plan Processor for the CAT during FAM 
Period 2. Accordingly, the $9,108,700 in technology costs for operating 
fees represent costs incurred for the services provided by FCAT under 
the Plan Processor Agreement during FAM Period 2. The fee arrangement 
for FCAT described above with regard to the Pre-FAM Period and FAM 
Period 1 continued in place during FAM Period 2 pursuant to the Plan 
Processor Agreement. During FAM Period 2, FCAT's activities with 
respect to the CAT included publishing the Technical Specifications for 
Phase 2d and overseeing the reporting of firm to firm and intrafirm 
linkages by Industry Members. In addition, FCAT also continued to 
engage in the following activities during FAM Period 2:
     Addressed compliance items, including drafting CAT 
policies and procedures, and addressing Regulation SCI requirements;
     Provided support to the Operating Committee, Compliance 
Subcommittee and CAT working groups;
     Assisted with interpretive efforts and exemptive requests 
regarding the CAT NMS Plan;
     Oversaw the development and implementation of the security 
of the CAT;
     Monitored the operation of the CAT, including with regard 
to Participant and Industry Member reporting;
     Provided support to subcontractors under the Plan 
Processor Agreement;
     Provided support in discussions with the Participants and 
the SEC and its staff;
     Operated the FINRA CAT Helpdesk;
     Facilitated communications with the industry, including 
via FAQs, CAT Alerts, meetings, presentations and webinars;
     Administered the CAT website and all of its content; and
     Provided technical support and assistance with 
connectivity, data access, and user support, including the use of CAT 
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, Kingland 
continued in its role as a subcontractor for the development and 
implementation of CAIS during FAM

[[Page 10865]]

Period 2. Accordingly, the $1,590,298 in technology costs for CAIS 
operating fees represent costs incurred for services provided by 
Kingland during FAM Period 2. The fee arrangement for Kingland 
described above with regard to the Pre-FAM Period and FAM Period 1 
continued in place during FAM Period 2 pursuant to the Plan Processor 
Agreement. During FAM Period 2, Kingland continued the development of 
the CAIS Technical Specifications and building of CAIS. In addition, 
Kingland continued to work on the CAIS Technical Specifications and 
build related to the CCID Alternative, as well as the acceleration of 
the reporting of LTIDs.
(d) Technology Costs--Change Request Fees
    During FAM Period 2, CAT LLC engaged FCAT to pursue certain change 
requests in accordance with the Plan Processor Agreement. The change 
request costs were paid by CAT LLC to FCAT. Specifically, during FAM 
Period 2, CAT incurred costs of $51,823 related to a change request 
regarding the addition of functionality for exchange Participants to 
report rejected messages to the CAT.
(e) Technology Costs--Capitalized Developed Technology Costs
    Capitalized developed technology costs for FAM Period 2 of 
$6,761,094 include capitalizable application development costs incurred 
in the development of the CAT by FCAT. Such costs include (1) 
development costs incurred during the application development stage to 
meet various agreed-upon milestones regarding the CAT, as defined in 
the agreement between CAT LLC and the Plan Processor; (2) costs related 
to certain modifications, upgrades, or other changes to the CAT that 
were not contemplated by the agreement between CAT LLC and the Plan 
Processor, including costs related to separate production and industry 
test entitlements, market maker reference data, and back-processing of 
exchange exception logic; (3) implementation fees; and (4) license 
fees.
(f) Legal Costs
    The legal costs of $2,766,644 represent the fees paid for legal 
services provided by two law firms, WilmerHale and Pillsbury during FAM 
Period 2.
    Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during 
FAM Period 2 based on, among other things, their expertise and long 
history with the project. The hourly fee rates for this law firm were 
in line with market rates for specialized legal expertise. The legal 
fees during FAM Period 2 were paid by CAT LLC to WilmerHale. During FAM 
Period 2, the legal assistance provided by WilmerHale included 
providing legal advice regarding the following:
     Assisted with the development of the CAT funding model and 
drafting related amendments and rule filings;
     Drafted exemptive requests from CAT NMS Plan requirements 
regarding, for example, allocations, exchange activity, OTQT, initial 
data validation, error corrections and recordkeeping;
     Provided interpretations related to CAT NMS Plan 
requirements, including with regard to the Financial Accountability 
Milestone amendment, FAQs and technical specifications;
     Provided support for the Operating Committee, Compliance 
Subcommittees, working groups and Leadership Team, including with 
regard to meetings with the SEC staff;
     Assisted with the Implementation Plan and Quarterly 
Progress Reports required pursuant to Section 6.6 of the CAT NMS Plan;
     Drafted SRO rule filings related to the CAT Compliance 
Rule;
     Provided support for the Compliance Subcommittee, 
including with regard to responses to OCIE examinations and the annual 
assessment;
     Provided guidance regarding the SEC's proposed security 
amendments to the CAT NMS Plan;
     Provided guidance regarding SRO rule filings for the 
retirement of systems;
     Provided legal support for Operating Committee meetings, 
including drafting resolutions and other materials and voting advice;
     Assisted with third party vendor agreements (e.g., with 
regard to Anchin, and Grant Thornton and insurance policies);
     Assisted with change requests; and
     Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretive and 
implementation issues.
    Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during 
FAM Period 2 based on, among other things, their expertise and history 
with the project. The hourly fee rates for this law firm were in line 
with market rates for specialized legal expertise. The legal fees 
during FAM Period 2 were paid by CAT LLC to Pillsbury. During FAM 
Period 2, Pillsbury provided legal assistance to the CAT regarding the 
CAT Reporter Agreement. During that period, Pillsbury advised CAT LLC 
regarding applicable legal matters and drafted and filed a proposed 
amendment to the CAT NMS plan regarding liability matters. As discussed 
above, liability issues related to the CAT are important matters that 
needed to be resolved and clarified. CAT LLC's efforts to seek such 
resolution and clarity work to the benefit of Participants, Industry 
Members and other market participants.
(g) Consulting Costs
    The consulting costs of $532,146 represent the fees paid to 
Deloitte as project manager during FAM Period 2. CAT LLC continued to 
employ Deloitte during FAM Period 2 based on, among other things, their 
expertise and long history with the project. The fee rates for Deloitte 
during FAM Period 2 were negotiated and in line with market rates for 
this type of specialized consulting work. The consulting fees during 
FAM Period 2 were paid to Deloitte by CAT LLC. CAT LLC reviewed the 
consulting fees each month and approved the invoices. During FAM Period 
2, Deloitte's CAT-related activities included the following:
     Implemented program operations for the CAT project;
     Provided support to the Operating Committee, the Chair of 
the Operating Committee and the Leadership Team, including project 
management support, coordination and planning for meetings and 
communications, and interfacing with law firms and the SEC;
     Assisted with cost and funding matters for the CAT, 
including the development of the CAT funding model and assistance with 
loans and the CAT bank account for CAT funding;
     Provided support for updating the SEC on the progress of 
the development of the CAT; and
     Provided support for third party vendors for the CAT, 
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
    The insurance costs of $976,098 represent the fees paid for 
insurance during FAM Period 2. CAT LLC continued to maintain cyber 
security liability insurance, directors' and officers' liability 
insurance, and errors and omissions liability insurance offered by USI. 
After engaging in a process for renewing the coverage, CAT LLC 
determined to purchase these insurance policies from USI. The annual 
premiums for these policies were competitive for the coverage provided. 
The annual premiums were paid by CAT LLC to USI.

[[Page 10866]]

(i) Professional and Administration Costs
    The professional and administration costs of $438,523 represent the 
fees paid to Anchin and Grant Thornton for financial services provided 
during FAM Period 2.
    Financial Advisory Firm: Anchin. CAT LLC continued to engage Anchin 
during FAM Period 2 based on, among other things, their expertise and 
history with the project. The hourly fee rates for this firm were in 
line with market rates for these types of financial advisory services. 
The fees for these services during FAM Period 2 were paid by CAT LLC to 
Anchin. During FAM Period 2, Anchin provided a variety of services, 
including the following:
     Updated and maintained internal controls;
     Provided cash management and treasury functions;
     Facilitated bill payments;
     Provided monthly bookkeeping;
     Reviewed vendor invoices and documentation in support of 
cash disbursements;
     Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
     Addressed not-for-profit tax and accounting 
considerations;
     Prepared tax returns;
     Addressed various accounting, financial reporting and 
operating inquiries from the Participants;
     Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
     Supported compliance with the CAT NMS Plan;
     Worked with and provided support to the Operating 
Committee and various CAT working groups;
     Prepared monthly, quarterly and annual financial 
statements;
     Supported the annual financial statement audit by an 
independent auditor; and
     Reviewed historical costs from inception.
    Accounting Firm: Grant Thornton. CAT LLC continued to employ the 
accounting firm Grant Thornton during FAM Period 2 based on, among 
other things, its expertise and cumulative knowledge of CAT LLC. CAT 
LLC continued to believe that Grant Thornton was well qualified for its 
role and its fee rates were in line with with market rates for these 
accounting services. The fees for these services during FAM Period 2 
were paid by CAT LLC to Grant Thornton. During FAM Period 2, Grant 
Thornton performed a financial statement audit for CAT LLC as an 
independent accounting firm.
(j) Public Relations Costs
    The public relations costs of $41,940 represent the fees paid to 
Peak Strategies during FAM Period 2. CAT LLC continued to employ Peak 
Strategies during FAM Period 2 based on, among other things, their 
expertise and history with the project. The fee rates for this firm 
were in line with market rates for these types of services. The fees 
for these services during FAM Period 2 were paid by CAT LLC to Peak 
Strategies. During FAM Period 2, Peak Strategies continued to provide 
professional communications services to CAT, including media relations 
consulting, strategy and execution. Specifically, the public relations 
firm provided services related to communications with the public 
regarding the CAT, including monitoring developments related to the CAT 
(e.g., congressional efforts, public comments and reaction to 
proposals, press coverage of the CAT), reporting such developments to 
CAT LLC, and drafting and disseminating communications to the public 
regarding such developments as well as reporting on developments 
related to the CAT (e.g., amendments to the CAT NMS Plan). As discussed 
above, such public relations services were important for various 
reasons, including monitoring comments made by market participants 
about the CAT and understanding issues related to the CAT discussed on 
the public record. By engaging a public relations firm, CAT LLC was 
better positioned to understand and address CAT matters to the benefit 
of all market participants.
(iv) Historical CAT Costs Incurred in Financial Accountability 
Milestone Period 3
    Historical CAT Costs 1 would include costs incurred by CAT and 
already funded by the Participants during Period 3 of the Financial 
Accountability Milestones (``FAM Period 3''),\59\ which covers the 
period from January 1, 2021-December 31, 2021. Historical CAT Costs 1 
would include costs for FAM Period 3 of $144,415,268. The Participants 
would remain responsible for one-third of this cost (which they have 
previously paid) ($48,138,423), and Industry Members would be 
responsible for the remaining two-thirds, with CEBBs paying one-third 
($48,138,423) and CEBSs paying one-third ($48,138,423). The following 
table breaks down Historical CAT Costs 1 for FAM Period 3 into the 
categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS 
Plan.
---------------------------------------------------------------------------

    \59\ Section 11.6(a)(i)(C) of the CAT NMS Plan.

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

[[Page 10867]]

[GRAPHIC] [TIFF OMITTED] TN13FE24.249

    By the completion of FAM Period 3, CAT LLC was required to 
implement the following requirements with regard the CAT:
---------------------------------------------------------------------------

    \60\ As discussed above, with respect to certain costs that were 
``appropriately excluded,'' such excluded costs relate to the 
amortization of capitalized technology costs, which are amortized 
over the life of the Plan Processor Agreement. As such costs have 
already been otherwise reflected in the filing, their inclusion 
would double count the capitalized technology costs. In addition, 
amortization is a non-cash expense.
    \61\ The costs described in this table of costs for FAM Period 3 
were calculated based upon CAT LLC's review of applicable bills and 
invoices and related financial statements. CAT LLC financial 
statements are available on the CAT website.

    (a) reporting to the Order Audit Trail System (``OATS'') is no 
longer required for new orders; (b) Industry Member reporting for 
equities transactions and simple electronic options transactions, 
excluding Customer Account Information, Customer-ID, and Customer 
Identifying Information, with sufficient intra-firm linkage, inter-
firm linkage, national securities exchange linkage, trade reporting 
facilities linkage, and representative order linkages (including any 
equities allocation information provided in an Allocation Report) to 
permit the Participants and the Commission to analyze the full 
lifecycle of an order across the national market system, from order 
origination through order execution or order cancellation, is 
developed, tested, and implemented at a 5% Error Rate or less; (c) 
Industry Member reporting for manual options transactions and 
complex options transactions, excluding Customer Account 
Information, Customer-ID, and Customer Identifying Information, with 
all required linkages to permit the Participants and the Commission 
to analyze the full lifecycle of an order across the national market 
system, from order origination through order execution or order 
cancellation, including any options allocation information provided 
in an Allocation Report, is developed, tested, and fully 
implemented; (d) the query tool functionality required by Section 
6.10(c)(i)(A) and Appendix D, Sections 8.1.1-8.1.3, Section 8.2.1, 
and Section 8.5 incorporates the data described in conditions (b)-
(c) and is available to the Participants and to the Commission; and 
(e) the requirements of Section 6.10(a) are met.\62\
---------------------------------------------------------------------------

    \62\ See definition of ``Full Availability and Regulatory 
Utilization of Transactional Database Functionality'' in Section 1.1 
of the CAT NMS Plan.

    CAT LLC completed the requirements of FAM Period 3 by December 31, 
2021. The following describes the costs for each of the categories for 
FAM Period 3.
(a) Technology Costs--Cloud Hosting Services
    CAT LLC continued to utilize AWS in FAM Period 3 to provide a broad 
array of cloud hosting services for the CAT, including data ingestion, 
data management, and analytic tools. AWS continued to provide storage 
services, databases, compute services and other services (such as 
networking, management tools and DevOps tools), as well as various 
environments for CAT, such as development, performance testing, test, 
and production environments, during the FAM 3 Period. Accordingly, the 
$94,574,759 in technology costs for cloud hosting services represents 
costs incurred for services provided by AWS, as the cloud services 
provider, during FAM Period 3. The fee arrangement for AWS described 
above for the earlier periods continued in place during FAM Period 3 
pursuant to the Plan Processor Agreement.
    The cost for AWS cloud services for the CAT continued to be a 
function of the volume of CAT Data. During FAM Period 3, the volume of 
CAT Data continued to far exceed the original predictions for the CAT 
as set forth in the CAT NMS Plan. During this period, data submitted to 
the CAT included options and equities Participant Data, Phase 2a, Phase 
2b, Phase 2c and Phase 2d Industry Member Data (including certain 
linkages), SIP Data, Other Data, including reference data, and LTID 
account information. The following chart provides data regarding the 
average daily volume, cumulative total events, total compute hours and 
storage footprint of the CAT during FAM Period 3.\63\
---------------------------------------------------------------------------

    \63\ Note that the volume data described in this table does not 
include CAIS data.

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

[[Page 10868]]

[GRAPHIC] [TIFF OMITTED] TN13FE24.250

(b) Technology Costs--Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, FCAT 
continued in its role as the Plan Processor for the CAT during FAM 
Period 3. Accordingly, the $23,106,091 in technology costs for 
operating fees represent costs incurred for the services provided by 
FCAT under the Plan Processor Agreement during FAM Period 3. The fee 
arrangement for FCAT described above with regard to the prior Periods 
continued in place during FAM Period 3 pursuant to the Plan Processor 
Agreement. During FAM Period 3, FCAT's activities with respect to the 
CAT included the following:
     Facilitated Phase 2c and Phase 2d testing for Industry 
Members;
     Oversaw creation of linkages of the lifecycle of order 
events based on the received data through Phase 2d;
     Addressed compliance items, including drafting CAT 
policies and procedures, and addressing Regulation SCI requirements;
     Provided support to the Operating Committee, the 
Compliance Subcommittee and CAT working groups;
     Assisted with interpretive efforts and exemptive requests 
regarding the CAT NMS Plan;
     Oversaw the security of the CAT;
     Monitored the operation of the CAT, including with regard 
to Participant and Industry Member reporting;
     Provided support to subcontractors under the Plan 
Processor Agreement;
     Provided support in discussions with the Participants and 
the SEC and its staff;
     Operated the FINRA CAT Helpdesk;
     Facilitated communications with the industry, including 
via FAQs, CAT Alerts, meetings, presentations and webinars;
     Administered the CAT website and all of its content; and
     Provided technical support and assistance with 
connectivity, data access, and user support, including the use of CAT 
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
    Pursuant to the Plan Processor Agreement with FCAT discussed above, 
Kingland continued in its role as a subcontractor for the development 
and implementation of CAIS during FAM Period 3. Accordingly, the 
$5,562,383 in technology costs for CAIS operating fees represents costs 
incurred for services provided by Kingland during FAM Period 3. The fee 
arrangement for Kingland described above with regard to the prior 
Periods continued in place during FAM Period 3 pursuant to the Plan 
Processor Agreement. During FAM Period 3, Kingland continued the 
development of the CAIS Technical Specifications and building of CAIS. 
In addition, Kingland continued to work on the CAIS Technical 
Specifications and build related to the CCID Alternative, as well as 
the acceleration of the reporting of LTIDs. The full CAIS Technical 
Specifications were published during FAM Period 3.
(d) Technology Costs--Change Request Fees
    During FAM Period 3, CAT LLC engaged FCAT to pursue certain change 
requests in accordance with the Plan Processor Agreement. The change 
request costs were paid by CAT LLC to FCAT. Specifically, during FAM 
Period 3, CAT incurred costs of $396,169 related to change requests, 
including the following: (1) the addition of functionality for exchange 
Participants to report rejected messages to the CAT; (2) the migration 
of MIRS query engine to AWS to reduce operational costs and increase 
resiliency; and (3) updating the Participant Technical Specifications 
to allow for two-sided Participant option quote reporting.

[[Page 10869]]

(e) Technology Costs--Capitalized Developed Technology Costs
    Capitalized developed technology costs for FAM Period 3 of 
$10,763,372 include capitalizable application development costs 
incurred in the development of the CAT by FCAT. Such costs include (1) 
development costs incurred during the application development stage to 
meet various agreed-upon milestones regarding the CAT, as defined in 
the agreement between CAT LLC and the Plan Processor, including the 
transition from equity data received by FINRA pursuant to various 
regulatory services agreements between FINRA and Participant exchanges 
to the equity CAT Data, and the completion of the Industry Member Phase 
2d options manual and complex orders go-live requirements; (2) costs 
related to certain modifications, upgrades, or other changes to the CAT 
that were not contemplated by the agreement between CAT LLC and the 
Plan Processor, including costs related to off-exchange volume 
concentration, Participant 24-hour trading and an external metastore; 
(3) implementation fees; and (4) license fees.
(f) Legal Costs
    The legal costs of $6,333,248 represent the fees paid for legal 
services provided by three law firms, WilmerHale, Pillsbury and 
Covington & Burling LLP (``Covington'') during FAM Period 3.
    Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during 
FAM Period 3 based on, among other things, their expertise and long 
history with the project. The hourly fee rates for this law firm were 
in line with market rates for specialized legal expertise. The legal 
fees during FAM Period 3 were paid by CAT LLC to WilmerHale. During FAM 
Period 3, the legal assistance provided by WilmerHale included 
providing legal advice regarding the following:
     Assisted with the development of the CAT funding model and 
drafting related amendments and rule filings;
     Drafted exemptive requests from CAT NMS Plan requirements, 
including, for example, verbal activity regarding Phase 2c cutover, 
error reports, error corrections, Phase 2d Reporting, unique Order-ID 
on internal route events, reporting addresses, recordkeeping, and 
unique CCID for foreign customers;
     Provided interpretations related to CAT NMS Plan 
requirements, including with regard to the Financial Accountability 
Milestone amendment, FAQs, CAIS requirements, ADF, and technical 
specifications;
     Provided support for the Operating Committee, Compliance 
Subcommittee, working groups and Leadership Team, including with regard 
to meetings with the SEC staff;
     Assisted with the Implementation Plan and Quarterly 
Progress Reports required pursuant to Section 6.6(c) of the CAT NMS 
Plan;
     Drafted SRO rule filings related to the CAT Compliance 
Rule;
     Provided support for Compliance Subcommittee, including 
with regard to response to OCIE examinations and the annual assessment;
     Provided guidance regarding SEC's proposed security 
amendments to CAT NMS Plan;
     Provided guidance regarding SRO rule filings for the 
retirement of systems;
     Provided legal support for Operating Committee meetings, 
including drafting resolutions and other materials and voting advice;
     Provided assistance with change requests;
     Provided guidance and regulatory support for litigation 
regarding the response to SEC's exemptive orders;
     Assisted with communications with the industry, includng 
CAT Alerts and presentations;
     Provided guidance regarding the confidentiality of CAT 
Data, including third-party information requests;
     Assisted with cost management analysis and proposals; and
     Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretive and 
implementation issues.
    Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during 
FAM Period 3 based on, among other things, their expertise and history 
with the project. The hourly fee rates for this law firm were in line 
with market rates for specialized legal expertise. The legal fees 
during FAM Period 3 were paid by CAT LLC to Pillsbury. During FAM 
Period 3, Pillsbury provided legal assistance to the CAT regarding the 
CAT Reporter Agreement. During this period, Pillsbury advised CAT LLC 
regarding applicable legal matters, reviewed and responded to comment 
letters regarding the proposed Plan amendment, participated in meetings 
with senior SEC staff, responded to comments submitted following the 
SEC's April 6, 2021 order instituting proceedings,\64\ and assessed 
legal matters regarding the SEC's October 29, 2021 order denying the 
proposed Plan amendment.\65\
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    \64\ Securities Exchange Act Release. No. 91487 (April 6, 2021), 
86 FR 19054 (April 12, 2021).
    \65\ Securities Exchange Act Release. No. 93484 (October 29, 
2021), 86 FR 60933 (November 4, 2021).
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    Law Firm: Covington. CAT LLC hired Covington for litigation with 
the SEC regarding certain exemptive orders related to the CAT, 
including orders issued in December 2020.\66\ CAT LLC interviewed this 
law firm as well as other potential law firms, considering a variety of 
factors in its analysis for choosing legal assistance, including the 
relevant expertise and fees of the potential lawyers. CAT LLC approved 
the engagement of Covington in January 2021. The fee rates for this law 
firm, which were calculated based on hourly rates, were in line with 
market rates for specialized services. The legal fees for FAM Period 3 
for this firm were paid by CAT LLC to Covington.
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    \66\ See Securities Exchange Act Release No. 90688 (December 16, 
2020), 85 FR 83634 (December 22, 2020); and Securities Exchange Act 
Release No. 90689 (December 16, 2020), 85 FR 83667 (December 22, 
2020) (collectively, the ``2020 Orders'').
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    After Covington was hired in 2021 through the end of 2021, the firm 
provided legal assistance regarding the litigation with the SEC 
regarding the 2020 Orders. These services included researching, 
drafting, and filing motions to stay the 2020 Orders and related 
materials in proceedings before the SEC, as well as researching, 
drafting, and filing petitions for judicial review of the 2020 Orders 
in proceedings before the U.S. Court of Appeals for the D.C. Circuit. 
Covington oversaw ongoing litigation proceedings on these matters, and 
also supported WilmerHale with respect to settlement negotiations with 
the SEC staff regarding the 2020 Orders.
    In addition to these services, CAT LLC engaged Covington in 
November 2021 to provide assistance with respect to the SEC's 
disapproval of CAT NMS Plan amendments concerning a proposed limitation 
on liability in the event of a data breach or similar event. Covington 
provided advice concerning CAT's response to the SEC's disapproval 
order. This work accounted for a minority of Covington's fees in 
2021.\67\
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    \67\ As discussed above with regard to Pillsbury's work on 
liability matters, liability issues related to the CAT are important 
matters that needed to be resolved and clarified. CAT LLC's efforts 
to seek such resolution and clarity work to the benefit of 
Participants, Industry Members and other market participants. 
Moreover, such activity is a necessary part of the operation of the 
CAT.
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(g) Consulting Costs
    The consulting costs of $1,408,209 represent the fees paid to 
Deloitte as project manager during FAM Period 3. CAT LLC continued to 
employ Deloitte during FAM Period 3 based on, among other things, their 
expertise and long history with the project. The fee rates for Deloitte 
during FAM Period 3 were negotiated and in line with market rates

[[Page 10870]]

for this type of specialized consulting work. The consulting fees 
during FAM Period 3 were paid to Deloitte by CAT LLC. CAT LLC reviewed 
the consulting fees each month and approved the invoices. During FAM 
Period 3, Deloitte's CAT-related activities included the following:
     Implemented program operations for the CAT project;
     Provided support to the Operating Committee, the Chair of 
the Operating Committee and the Leadership Team, including project 
management support, coordination and planning for meetings and 
communications, and interfacing with law firms and the SEC;
     Assisted with cost and funding matters for the CAT, 
including the development of the CAT funding model and assistance with 
loans and the CAT bank account for CAT funding;
     Provided support for updating the SEC on the progress of 
the development of the CAT; and
     Provided support for third party vendors for the CAT, 
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
    The insurance costs of $1,582,714 represent the fees paid for 
insurance FAM Period 3. CAT LLC continued to maintain cyber security 
liability insurance, directors' and officers' liability insurance, and 
errors and omissions liability insurance offered by USI. After engaging 
in a process for renewing the coverage, CAT LLC determined to purchase 
these insurance policies from USI. The annual premiums for these 
policies were competitive for the coverage provided. The annual 
premiums were paid by CAT LLC to USI.
(i) Professional and Administration Costs
    The professional and administration costs of $595,923 represent the 
fees paid to Anchin and Grant Thornton for financial services during 
FAM Period 3.
    Financial Advisory Firm: Anchin. CAT LLC continued to employ Anchin 
during FAM Period 3 based on, among other things, their expertise and 
history with the project. The hourly fee rates for this firm were in 
line with market rates for these financial advisory services. The fees 
for these services during FAM Period 3 were paid by CAT LLC to Anchin. 
During FAM Period 3, Anchin provided a variety of services, including 
the following:
     Updated and maintained internal controls;
     Provided cash management and treasury functions;
     Facilitated bill payments;
     Provided monthly bookkeeping;
     Reviewed vendor invoices and documentation in support of 
cash disbursements;
     Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
     Addressed not-for-profit tax and accounting 
considerations;
     Prepared tax returns;
     Addressed various accounting, financial reporting and 
operating inquiries from Participants;
     Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
     Supported compliance with the CAT NMS Plan;
     Worked with and provided support to the Operating 
Committee and various CAT working groups;
     Prepared monthly, quarterly and annual financial 
statements;
     Supported the annual financial statement audits by an 
independent auditor;
     Reviewed historical costs from inception; and
     Provided accounting and financial information in support 
of SEC filings.
    Accounting Firm: Grant Thornton. CAT LLC continued to employ the 
accounting firm Grant Thornton during FAM Period 3 based on, among 
other things, their expertise and cumulative knowledge of CAT LLC. CAT 
LLC determined that Grant Thornton was well qualified for its role and 
that its fixed fee rates were in line with market rates for these 
accountant services. The fees for these services during FAM Period 3 
were paid by CAT LLC to Grant Thornton. During FAM Period 3, Grant 
Thornton provided audited financial statements for CAT LLC.
(j) Public Relations Costs
    The public relations costs of $92,400 represent the fees paid to 
Peak Strategies during FAM Period 3. CAT LLC continued to employ Peak 
Strategies during FAM Period 3 based on, among other things, their 
expertise and history with the project. The fee rates for this firm 
were in line with market rates for these types of services. The fees 
for these services during FAM Period 3 were paid by CAT LLC to Peak 
Strategies. During FAM Period 3, Peak Strategies continued to provide 
professional communications services to CAT, including media relations 
consulting, strategy and execution. Specifically, the public relations 
firm provided services related to communications with the public 
regarding the CAT, including monitoring developments related to the CAT 
(e.g., congressional efforts, public comments and reaction to 
proposals, press coverage of the CAT), reporting such developments to 
CAT LLC, and drafting and disseminating communications to the public 
regarding such developments as well as reporting on developments 
related to the CAT (e.g., amendments to the CAT NMS Plan). As discussed 
above, such public relations services were important for various 
reasons, including monitoring comments made by market participants 
about the CAT and understanding issues related to the CAT discussed on 
the public record. By engaging a public relations firm, CAT LLC was 
better positioned to understand and address CAT matters to the benefit 
of all market participants.
(v) Excluded Costs
    Historical CAT Costs 1 would not include two categories of CAT 
costs (``Excluded Costs''): (1) $48,874,937, which are all CAT costs 
incurred from November 15, 2017 through November 15, 2018; and (2) 
$14,749,362 of costs related to the termination of the relationship 
with the Initial Plan Processor. The Participants would remain 
responsible for 100% of these costs, which total $63,624,299. CAT LLC 
determined that it was reasonable to exclude these Excluded Costs from 
Historical CAT Costs 1 because the excluded costs relate to the delay 
in the start of reporting to the CAT and the conclusion of the 
relationship with the Initial Plan Processor.\68\
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    \68\ In approving the CAT Funding Model, the Commission states 
that ``the proposed exclusion of the `Excluded Costs' from Past CAT 
Costs is reasonable in the Commission's view because it would not 
require all costs incurred by the Participants to be recovered from 
Industry Members through the Historical CAT Assessment, specifically 
excluding those costs related to the delay in the start of reporting 
to the CAT and costs related to the conclusion of the relationship 
with the Initial Plan Processor.'' See CAT Funding Model Approval 
Order, 88 FR 62628, 62663.
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    First, Historical CAT Costs 1 would not include $14,749,362 of 
costs related to the conclusion of the relationship with the Initial 
Plan Processor. Such costs include costs related to the American 
Arbitration Association, the legal assistance of Pillsbury with regard 
to the arbitration with Thesys CAT, and the settlement costs related to 
the arbitration with Thesys CAT. The Participants would remain 
responsible for 100% of these $14,749,362 in costs.
    Second, the Historical CAT Costs would exclude all CAT costs 
incurred from November 15, 2017 through November 15, 2018. CAT LLC 
determined to exclude all costs during

[[Page 10871]]

this one-year period of $48,874,937 from fees charged to Industry 
Members due to the delay in the start of reporting to the CAT. The 
Participants would remain responsible for 100% of these $48,874,937 in 
costs. The following table breaks down these costs into the categories 
set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
[GRAPHIC] [TIFF OMITTED] TN13FE24.251

    The following provides additional detail regarding the Excluded 
Costs.
---------------------------------------------------------------------------

    \69\ The costs described in this table of Excluded Costs were 
calculated based upon CAT LLC's review of applicable bills and 
invoices and related financial statements. CAT LLC financial 
statements are available on the CAT website.
---------------------------------------------------------------------------

(a) Technology Costs--Cloud Hosting Services, Operating Fees, CAIS 
Operating Fees and Change Request Fees
    CAT LLC did not incur technology costs related to the categories of 
cloud hosting services, operating fees, CAIS operating fees or change 
requests during the period from November 15, 2017 through November 15, 
2018.
(b) Technology Costs--Capitalized Developed Technology Costs
    Capitalized developed technology costs for the period from November 
15, 2017 through November 15, 2018 include capitalizable application 
development costs of $37,852,083 incurred in the development of the CAT 
by the Initial Plan Processor. Such costs include development costs 
incurred during the application development stage to meet various 
agreed-upon milestones regarding the CAT, as defined in the agreement 
between CAT LLC and the Initial Plan Processor. Such costs include 
costs related to Industry Member technical specifications for orders 
and transactions, the system security plan, testing and production for 
Participant CAT reporting, third-party security assessment and 
response, query portal, onboarding of the Chief Information Security 
Officer, and ingestion of FINRA TRF data and FINRA data related to 
halts and corporate actions.
(c) Legal Costs
    The legal costs of $6,143,278 represent the fees paid to WilmerHale 
for legal services from November 15, 2017 through November 15, 2018. 
During this period, WilmerHale provided legal assistance to the CAT 
including with regard to the following:
     Provided legal support for the governance of the CAT, 
including governance support for the Operating Committee, Advisory 
Committee, Compliance Subcommittee, and CAT working groups;
     Assisted with the development of the CAT funding model and 
drafted related amendments of the CAT NMS Plan;
     Provided assistance related to CAT security;
     Drafted exemptive requests, including requests related to 
PII;
     Assisted with the Implementation Plan required pursuant to 
Section 6.6(c)(i) of the CAT NMS Plan;
     Provided interpretations of and related to the CAT NMS 
Plan;
     Provided advice with regard to regulator access to the 
CAT;
     Assisted with the Plan Processor transition;
     Provided assistance regarding communications with the 
industry regarding the CAT;
     Provided advice regarding Customer Account Information and 
PII;
     Provided support for litigation related to SEC exemptive 
orders; and
     Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretative and 
implementation issues.
(d) Consulting Costs
    The consulting costs of $4,452,106 represent the fees paid to 
Deloitte for their role as project manager for the CAT from November 
15, 2017 through November 15, 2018. During this period, Deloitte 
engaged in the following activities with respect to the CAT:
     Implemented program operations for the CAT project;
     Provided governance support to the Operating Committee, 
including support for Subcommittees and working groups of the Operating 
Committee (e.g., Compliance Subcommittee, Cost and Funding Working 
Group, Technical Working Group, Industry Outreach Working Group, 
Security Working Group and Steering Committee);
     Assisted with cost and funding issue for the CAT, 
including the development of the CAT funding model

[[Page 10872]]

and assistance with loans and the CAT bank account for CAT funding;
     Provided support for updating the SEC on the progress of 
the development of the CAT; and
     Provided active planning and coordination with and support 
for the Initial Plan Processor with regard to the development of the 
CAT, and reported to the Participants on the progress.
(e) Insurance
    CAT LLC did not incur costs related to insurance during the period 
from November 15, 2017 through November 15, 2018.
(f) Professional and Administration Costs
    The professional and administration costs of $340,145 represent the 
fees paid to Anchin, Exegy and RSM from November 15, 2017 through 
November 15, 2018.
    Financial Advisory Firm: Anchin. From the commencement of its 
engagement in April 2018 through November 15, 2018, Anchin engaged in 
the following activities with respect to the CAT:
     Developed, updated and maintained internal controls;
     Provided cash management and treasury functions;
     Facilitated bill payments;
     Provided monthly bookkeeping;
     Reviewed vendor invoices and documentation in support of 
cash disbursements;
     Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
     Addressed not-for-profit tax and accounting 
considerations;
     Prepared tax returns;
     Addressed various accounting, financial reporting and 
operating inquiries from Participants;
     Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
     Addressed accounting and financial matters relating to the 
transition from CAT NMS, LLC to Consolidated Audit Trail, LLC, 
including supporting the dissolution of CAT NMS, LLC;
     Supported compliance with the CAT NMS Plan;
     Worked with and provided support to the Operating 
Committee and various CAT working groups;
     Prepared monthly, quarterly and annual financial 
statements;
     Supported the annual financial statement audits by an 
independent auditor;
     Reviewed historical costs from inception; and
     Provided accounting and financial information in support 
of SEC filings.
    Market Data Provider: Exegy. From July 2018 through November 15, 
2018, CAT LLC purchased market data from Exegy (as described in more 
detail above).
    Security Assessment: RSM. From October 2018 through November 15, 
2018, CAT LLC incurred costs for RSM's performance of a security 
assessment (as described in more detail above).
(g) Public Relations Costs
    The public relations costs of $87,325 represent the fees paid to 
Sloane from November 15, 2017 through November 15, 2018. From the 
commencement of its engagement in March 2018 through November 15, 2018, 
Sloane provided professional communications services to CAT, including 
media relations consulting, strategy and execution. Specifically, 
Sloane provided services related to communications with the public 
regarding the CAT, including monitoring developments related to the CAT 
(e.g., congressional efforts, public comments and reaction to 
proposals, press coverage of the CAT), reporting such developments to 
CAT LLC, and drafting and disseminating communications to the public 
regarding such developments as well as reporting on developments 
related to the CAT (e.g., amendments to the CAT NMS Plan).
(C) Historical Recovery Period 1
    Under the CAT NMS Plan, the Operating Committee is required to 
reasonably establish the length of the Historical Recovery Period used 
in calculating each Historical Fee Rate based upon the amount of the 
Historical CAT Costs to be recovered by the Historical CAT Assessment, 
and to describe the reasons for its length.\70\ The Historical Recovery 
Period used in calculating the Historical Fee Rate may not be less than 
24 months or more than five years.\71\ The Operating Committee has 
determined to establish a Historical Recovery Period 1 of 24 months for 
Historical CAT Assessment 1.
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    \70\ Section 11.3(b)(i)(D)(I) and Section 11.3(b)(iii)(B)(II) of 
the CAT NMS Plan.
    \71\ Section 11.3(b)(i)(D)(I) of the CAT NMS Plan. In the CAT 
Funding Model Approval Order, the SEC stated that ``[i]n the 
Commission's view, it is reasonable for the Operating Committee to 
establish the length of the Historical Recovery Period to be no less 
than 24 months and no more than five years.'' CAT Funding Model 
Approval Order, 88 FR 62628, 62664.
---------------------------------------------------------------------------

    The Operating Committee determined that the length of Historical 
Recovery Period 1 appropriately weighs the need for a reasonable 
Historical Fee Rate 1 that spreads the Historical CAT Costs over an 
appropriate amount of time and the need to repay the loans to the 
Participants in a timely fashion. The Operating Committee determined 
that 24 months for Historical Recovery Period 1 would establish a fee 
rate that is lower than other transaction-based fees, including fees 
assessed pursuant to Section 31.\72\ In addition, in establishing a 
Historical Recovery Period of 24 months, the Operating Committee 
recognized that the total costs for Historical CAT Assessment 1 were 
less than the total costs for 2022 and 2023,\73\ and therefore it would 
be reasonable and appropriate to recover costs subject to this filing 
over an approximate two-year period. Furthermore, the Operating 
Committee notes that 24 months is appropriate because it is not 
currently proposing that Industry Members be required to pay additional 
CAT fees with regard to another Historical CAT Assessment or CAT Fees 
with regard to Prospective CAT Costs at the same time.
---------------------------------------------------------------------------

    \72\ As the SEC noted in the CAT Funding Model Approval Order, 
recent Section 31 fees ranged from $0.00009 per share to $0.0004 per 
share. CAT Funding Model Approval Order, 88 FR 62628, 62682.
    \73\ The total CAT costs for 2022 were approximately $186 
million and the total CAT costs for 2023 are estimated to be 
approximately $233 million.
---------------------------------------------------------------------------

    The length of the Historical Recovery Period 1 and the reasons for 
its length are provided in this filing in accordance with the 
requirement in the CAT NMS Plan to provide such information in a fee 
filing for a Historical CAT Assessment.\74\
---------------------------------------------------------------------------

    \74\ Section 11.3(b)(iii)(B)(II)(C) of the CAT NMS Plan.
---------------------------------------------------------------------------

(D) Projected Total Executed Equivalent Share Volume
    The calculation of Historical Fee Rate 1 also requires the 
determination of the projected total executed equivalent share volume 
of transactions in Eligible Securities for Historical Recovery Period 
1. Under the CAT NMS Plan, the Operating Committee is required to 
``reasonably determine the projected total executed equivalent share 
volume of all transactions in Eligible Securities for each Historical 
Recovery Period based on the executed equivalent share volume of all 
transactions in Eligible Securities for the prior twelve months.'' \75\ 
The Operating Committee is required to base its projection on the prior 
twelve months, but it may use its discretion to analyze the likely 
volume for the upcoming year. Such discretion would allow the Operating 
Committee to use its judgment when estimating projected total executed 
equivalent share volume if the volume over the

[[Page 10873]]

prior twelve months was unusual or otherwise unfit to serve as the 
basis of a future volume estimate.\76\
---------------------------------------------------------------------------

    \75\ Section 11.3(b)(i)(E) of the CAT NMS Plan.
    \76\ See CAT Funding Model Approval Order, 88 FR 62628, 62664.
---------------------------------------------------------------------------

    The total executed equivalent share volume of transactions in 
Eligible Securities for the period from December 2022 through November 
2023 was 3,842,861,347,279.44 executed equivalent shares. The Operating 
Committee has determined to calculate the projected total executed 
equivalent share volume for the 24 months of Historical Recovery Period 
1 by doubling the executed equivalent share volume for the prior 12 
months. The Operating Committee determined that such an approach was 
reasonable as the CAT's annual executed equivalent share volume has 
remained relatively constant. For example, the executed equivalent 
share volume for 2021 was 3,963,697,612,395 executed equivalent shares, 
and the executed equivalent share volume for 2022 was 
4,039,821,841,560.31 executed equivalent shares. Accordingly, the 
projected total executed equivalent share volume for Historical 
Recovery Period 1 is projected to be 7,685,722,694,558.88 executed 
equivalent shares.\77\
---------------------------------------------------------------------------

    \77\ This projection was calculated by multiplying 
3,842,861,347,279.44 executed equivalent shares by two.
---------------------------------------------------------------------------

    The projected total executed equivalent share volume of all 
transactions in Eligible Securities for Historical Recovery Period 1 
and a description of the calculation of the projection is provided in 
this filing in accordance with the requirement in the CAT NMS Plan to 
provide such information in a fee filing for a Historical CAT 
Assessment.\78\
---------------------------------------------------------------------------

    \78\ Section 11.3(b)(iii)(B)(II)(D) of the CAT NMS Plan.
---------------------------------------------------------------------------

(E) Historical Fee Rate 1
    Historical Fee Rate 1 would be calculated by dividing Historical 
CAT Costs 1 by the reasonably projected total executed equivalent share 
volume of all transactions in Eligible Securities for Historical 
Recovery Period 1, as described in detail above.\79\ Specifically, 
Historical Fee Rate 1 would be calculated by dividing $337,688,610 by 
7,685,722,694,558.88. As a result, the Historical Fee Rate 1 would be 
$0.0000439371316687066 per executed equivalent share. Historical Fee 
Rate 1 is provided in this filing in accordance with the requirement in 
the CAT NMS Plan to provide the Historical Fee Rate in a fee filing for 
a Historical CAT Assessment.\80\
---------------------------------------------------------------------------

    \79\ In approving the CAT Funding Model, the Commission stated 
that ``[t]he calculation of the Historical Fee Rate by dividing the 
Historical CAT Costs by the projected total executed equivalent 
share volume of all transactions in Eligible Securities for the 
Historical Recovery Period is reasonable.'' See CAT Funding Model 
Approval Order, 88 FR 62628, 62664.
    \80\ Section 11.3(b)(iii)(B)(II)(A) of the CAT NMS Plan.
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(3) Past CAT Costs and Participants
    Participants would not be required to pay any fees associated with 
Historical CAT Assessment 1 as the Participants previously have paid 
all Past CAT Costs. The CAT NMS Plan explains that:

    Because Participants previously have paid Past CAT Costs via 
loans to the Company, Participants would not be required to pay any 
Historical CAT Assessment. In lieu of a Historical CAT Assessment, 
the Participants' one-third share of Historical CAT Costs and such 
other additional Past CAT Costs as reasonably determined by the 
Operating Committee will be paid by the cancellation of loans made 
to the Company on a pro rata basis based on the outstanding loan 
amounts due under the loans.\81\
---------------------------------------------------------------------------

    \81\ Section 11.3(b)(ii) of the CAT NMS Plan.

    The CAT NMS Plan further states that ``Historical CAT Assessments 
are designed to recover two-thirds of the Historical CAT Costs.'' \82\
---------------------------------------------------------------------------

    \82\ See supra note 80. In approving the CAT Funding Model, the 
Commission stated that ``[t]he proposed allocation of the Historical 
CAT Assessment solely to CEBSs and CEBBs, and ultimately Industry 
Members, is reasonable. The Historical CAT Assessment will still be 
divided into thirds,'' as the Participants' one-third share of 
Historical CAT Costs will be paid by the cancellation of loans made 
to the Company. CAT Funding Model Approval Order, 88 FR 62628, 
62666.
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(4) Monthly Fees
    CEBBs and CEBSs would be required to pay fees for Historical CAT 
Assessment 1 on a monthly basis for the period in which Historical CAT 
Assessment 1 is in effect.\83\ A CEBB or CEBS's fee for each month 
would be calculated based on the transactions in Eligible Securities 
executed by the CEBB or CEBS from the prior month.\84\ Proposed 
paragraph (a)(1)(A)(i) of Rule 6897 would state that each CAT Executing 
Broker would receive its first invoice in April 2024, and ``would 
receive an invoice each month thereafter in which Historical CAT 
Assessment 1 is in effect.'' Proposed paragraph (a)(1)(A)(ii) would 
state that ``Consolidated Audited Trail, LLC shall provide each CAT 
Executing Broker with an invoice for Historical CAT Assessment 1 on a 
monthly basis.'' In addition, proposed paragraph (a)(2)(A) states that 
each CEBB and CEBS is required to pay its CAT fees ``each month.''
---------------------------------------------------------------------------

    \83\ See Section 11.3(b)(iii)(A) of the CAT NMS Plan.
    \84\ See proposed paragraph (a)(1)(A)(ii) of proposed Rule 6897.
---------------------------------------------------------------------------

(5) Actual Recovery Period for Historical CAT Assessment 1
    The CAT NMS Plan states that, ``[n]otwithstanding the length of the 
Historical Recovery Period used in calculating the Historical Fee Rate, 
each Historical CAT Assessment calculated using the Historical Fee Rate 
will remain in effect until all Historical CAT Costs for the Historical 
CAT Assessment are collected.'' \85\ Accordingly, Historical CAT 
Assessment 1 will remain in effect until all Historical CAT Costs 1 
have been collected. The actual recovery period for Historical CAT 
Assessment 1 may be shorter or longer than Historical Recovery Period 1 
depending on the actual executed equivalent share volumes during the 
time that Historical CAT Assessment 1 is in effect.\86\
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    \85\ Section 11.3(b)(i)(D)(II) of the CAT NMS Plan.
    \86\ In approving the CAT Funding Model, the Commission stated 
that ``[i]n the Commission's view, it is reasonable for Industry 
Members to be charged a Historical CAT Assessment until all 
Historical CAT Costs for the Historical CAT Assessment are 
collected.'' See CAT Funding Model Approval Order, 88 FR 62628, 
62665.
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(6) Consolidated Audit Trail Funding Fees
    To implement Historical CAT Assessment 1, FINRA proposes to adopt 
FINRA Rule 6897 (Consolidated Audit Trail Funding Fees), including the 
proposed paragraphs described below.
(A) Historical CAT Assessment 1
    The CAT NMS Plan states that:

    Each month in which a Historical CAT Assessment is in effect, 
each CEBB and each CEBS shall pay a fee for each transaction in 
Eligible Securities executed by the CEBB or CEBS from the prior 
month as set forth in CAT Data, where the Historical CAT Assessment 
for each transaction will be calculated by multiplying the number of 
executed equivalent shares in the transaction by one-third and by 
the Historical Fee Rate reasonably determined pursuant to paragraph 
(b)(i) of this Section 11.3.\87\
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    \87\ Section 11.3(b)(iii)(A) of the CAT NMS Plan.

    Accordingly, based on the factors discussed above, FINRA proposes 
to adopt paragraph (a)(1)(A) of FINRA Rule 6897, which would state 
---------------------------------------------------------------------------
that:

    (i) Each CAT Executing Broker shall receive its first invoice 
for Historical CAT Assessment 1 in April 2024, which shall set forth 
the Historical CAT Assessment 1 fees calculated based on 
transactions in March 2024, and shall receive an invoice for 
Historical CAT Assessment 1 for each month thereafter in which 
Historical CAT Assessment 1 is in effect.

[[Page 10874]]

    (ii) Consolidated Audit Trail, LLC shall provide each CAT 
Executing Broker with an invoice for Historical CAT Assessment 1 on 
a monthly basis. Each month, such invoices shall set forth a fee for 
each transaction in Eligible Securities executed by the CAT 
Executing Broker in its capacity as a CAT Executing Broker for the 
Buyer (``CEBB'') and/or the CAT Executing Broker for the Seller 
(``CEBS'') (as applicable) from the prior month as set forth in CAT 
Data. The fee for each such transaction will be calculated by 
multiplying the number of executed equivalent shares in the 
transaction by the fee rate of $0.000015 per executed equivalent 
share.
    (iii) Historical CAT Assessment 1 will remain in effect until 
$225,125,740 (two-thirds of Historical CAT Costs 1) are collected 
from CAT Executing Brokers collectively, which is estimated to be 
approximately two years, but could be for a longer or shorter period 
of time. Consolidated Audit Trail, LLC will provide notice when 
Historical CAT Assessment 1 will no longer be in effect.
    (iv) Each CAT Executing Broker shall be required to pay each 
invoice for Historical CAT Assessment 1 in accordance with paragraph 
(a)(2) of this Rule.

    As noted in the Plan amendment for the CAT Funding Model, ``as a 
practical matter, the fee filing for a Historical CAT Assessment would 
provide the exact fee per executed equivalent share to be paid for each 
Historical CAT Assessment, by multiplying the Historical Fee Rate by 
one-third and describing the relevant number of decimal places for the 
fee rate.\88\ Accordingly, proposed paragraph (a)(1)(A)(ii) of Rule 
6897 would set forth a fee rate of $0.000015 per executed equivalent 
share. This fee rate is calculated by multiplying Historical Fee Rate 1 
of $0.0000439371316687066 by one-third, and rounding the result to 6 
decimal places.\89\ The Operating Committee determined to use six 
decimal places to balance the accuracy of the calculation with the 
potential systems and other impracticalities of using additional 
decimal places in the calculation.
---------------------------------------------------------------------------

    \88\ CAT Funding Model Approval Order at 62658, n.658.
    \89\ Dividing $0.0000439371316687066 by three equals 
$0.00001464571055623553. Rounding $$0.00001464571055623553 to six 
decimal places equals $0.000015.
---------------------------------------------------------------------------

    The proposed language in paragraph (a)(1)(A)(i) would describe when 
CAT Executing Brokers would receive their first monthly invoice for 
Historical CAT Assessment 1. Specifically, CAT Executing Brokers would 
receive their first monthly invoice for Historical CAT Assessment 1 in 
April 2024 and the fees set forth in that invoice would be calculated 
based on transactions executed in the prior month, that is, 
transactions executed in March 2024. The payment for the first invoice 
would be required within 30 days after the receipt of the first invoice 
(unless a longer period is indicated), as described in proposed 
paragraph (a)(2)(B) of proposed Rule 6897.
    Proposed paragraph (a)(1)(A)(i) also would describe the monthly 
cadence of the invoices for Historical CAT Assessment 1. Specifically, 
after the first invoices are provided to CAT Executing Brokers in April 
2024, invoices will be sent to CAT Executing Brokers each month 
thereafter while Historical CAT Assessment 1 is in effect.
    Proposed paragraph (a)(1)(A)(ii) would describe the invoices for 
Historical CAT Assessment 1. Proposed paragraph (a)(1)(A)(ii) would 
state that ``Consolidated Audit Trail, LLC shall provide each CAT 
Executing Broker with an invoice for Historical CAT Assessment 1 on a 
monthly basis.'' Proposed paragraph (a)(1)(A)(ii) also would describe 
the fees to be set forth in the invoices for Historical CAT Assessment 
1. Specifically, it would state that ``[e]ach month, such invoices 
shall set forth a fee for each transaction in Eligible Securities 
executed by the CAT Executing Broker in its capacity as a CAT Executing 
Broker for the Buyer (``CEBB'') and/or the CAT Executing Broker for the 
Seller (``CEBS'') (as applicable) from the prior month as set forth in 
CAT Data. The fee for each such transaction will be calculated by 
multiplying the number of executed equivalent shares in the transaction 
by the fee rate of $0.000015 per executed equivalent share.''
    Furthermore, proposed paragraph (a)(1)(A)(iii) would describe how 
long Historical CAT Assessment 1 would remain in effect. It would state 
that ``Historical CAT Assessment 1 will remain in effect until 
$225,125,740 (two-thirds of Historical CAT Costs 1) are collected from 
CAT Executing Brokers collectively, which is estimated to be 
approximately two years, but could be for a longer or shorter period of 
time.'' This proposed paragraph would further state that ``Consolidated 
Audit Trail, LLC will be [sic] provide notice when Historical CAT 
Assessment 1 will no longer be in effect.''
    Historical CAT Assessment 1 will be assessed for all transactions 
executed in each month through the end of the month in which two-thirds 
of Historical CAT Costs 1 are assessed, and then CAT LLC will provide 
notice that Historical CAT Assessment 1 is no longer in effect. Since 
Historical CAT Assessment 1 is a monthly fee based on transaction 
volume from the prior month, Historical CAT Assessment 1 may collect 
more than two-thirds of Historical CAT Costs 1. To the extent that 
occurs, any excess money collected during the final month in which 
Historical CAT Assessment 1 is in effect will be used to offset future 
fees and/or to fund the reserve for the CAT.
    Finally, proposed paragraph (a)(1)(A)(iv) sets forth the 
requirement for the CAT Executing Brokers to pay the invoices for 
Historical CAT Assessment 1. It would state that ``[e]ach CAT Executing 
Broker shall be required to pay each invoice for Historical CAT 
Assessment 1 in accordance with paragraph (a)(2) of this Rule.''
(B) Manner of Payment
    FINRA proposes to adopt paragraph (a)(2) of the proposed Rule 6897 
(Consolidated Audit Trail Funding Fees) to describe the manner of 
payment of Industry Member CAT fees. The CAT NMS Plan requires the 
Operating Committee to establish a system for the collection of CAT 
fees.\90\ The Plan Processor has established a billing system for CAT 
fees.\91\ Therefore, FINRA proposes to require CAT Executing Brokers to 
pay Historical CAT Assessment 1 in accordance with such system. 
Accordingly, proposed paragraph (a)(2)(A) would state that ``[e]ach CAT 
Executing Broker shall pay its CAT fees as required pursuant to 
paragraph (a)(1) of this Rule each month to the Consolidated Audit 
Trail, LLC in the manner prescribed by the Consolidated Audit Trail, 
LLC.''
---------------------------------------------------------------------------

    \90\ Section 11.4 of the CAT NMS Plan.
    \91\ The billing process and system are described in CAT Alert 
2023-02 as well as the CAT FAQs related to the billing of CAT fees, 
the Industry Member CAT Reporter Portal User Guide, the FCAT 
Industry Member Onboarding Guide, the FCAT Connectivity Supplement 
for Industry Members and the CAT Billing Webinars (dated September 
28, 2023 and November 7, 2023), each available on the CAT website.
---------------------------------------------------------------------------

(C) Failure To Pay CAT Fees
    The CAT NMS Plan further states that:

    Participants shall require each Industry Member to pay all 
applicable fees authorized under this Article XI within thirty (30) 
days after receipt of an invoice or other notice indicating payment 
is due (unless a longer payment period is otherwise indicated). If 
an Industry Member fails to pay any such fee when due (as determined 
in accordance with the preceding sentence), such Industry Member 
shall pay interest on the outstanding balance from such due date 
until such fee is paid at a per annum rate equal to the lesser of: 
(a) the Prime Rate plus 300 basis points; or (b) the maximum rate 
permitted by applicable law.\92\
---------------------------------------------------------------------------

    \92\ Section 11.4 of the CAT NMS Plan.


[[Page 10875]]


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

    Accordingly, FINRA proposes to add this requirement to Rule 6897. 
Proposed paragraph (a)(2)(B) of Rule 6897 would state:

    Each CAT Executing Broker shall pay the CAT fees required 
pursuant to paragraph (a)(1) of this Rule within 30 days after 
receipt of an invoice or other notice indicating payment is due 
(unless a longer payment period is otherwise indicated). If a CAT 
Executing Broker fails to pay any such CAT fee when due, such CAT 
Executing Broker shall pay interest on the outstanding balance from 
such due date until such fee is paid at a per annum rate equal to 
the lesser of (i) the Prime Rate plus 300 basis points, or (ii) the 
maximum rate permitted by applicable law.
(7) Historical CAT Assessment Details
    The CAT NMS Plan states that:

    Details regarding the calculation of a CAT Executing Broker's 
Historical CAT Assessment will be provided upon request to such CAT 
Executing Broker. At a minimum, such details would include each CAT 
Executing Broker's executed equivalent share volume and 
corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity 
Securities, (2) by transactions executed on each exchange and 
transactions executed otherwise than on an exchange, and (3) by buy-
side transactions and sell-side transactions.\93\
---------------------------------------------------------------------------

    \93\ Section 11.3(a)(iv)(A) of the CAT NMS Plan.

    Such information would provide CEBBs and CEBSs with the ability to 
understand the details regarding the calculation of their Historical 
CAT Assessment.\94\ CAT LLC will provide CAT Executing Brokers with 
these details regarding the calculation of their Historical CAT 
Assessments on their monthly invoice for the Historical CAT Assessment.
---------------------------------------------------------------------------

    \94\ In approving the CAT Funding Model, the Commission stated 
that, ``[i]n the Commission's view, providing CAT Execut[ing] 
Brokers information regarding the calculation of their CAT Fees will 
aid in transparency and permit CAT Execut[ing] Brokers to confirm 
the accuracy of their invoices for CAT Fees.'' See CAT Funding Model 
Approval Order, 88 FR 62628, 62667.
---------------------------------------------------------------------------

    In addition, CAT LLC will make certain aggregate statistics 
regarding Historical CAT Assessments publicly available. Specifically, 
the CAT NMS Plan states that, ``[f]or each Historical CAT Assessment, 
at a minimum, CAT LLC will make publicly available the aggregate 
executed equivalent share volume and corresponding aggregate fee by (1) 
Listed Options, NMS Stocks and OTC Equity Securities, (2) by 
transactions executed on each exchange and transactions executed 
otherwise on an exchange, and (3) by buy-side transactions and sell-
side transactions.'' \95\ Such aggregate statistics will be available 
on the CAT website. Furthermore, CAT LLC will make publicly available 
on the CAT website the total amount invoiced each month that Historical 
CAT Assessment 1 is in effect as well as the total amount invoiced for 
Historical CAT Assessment 1 for all months since its commencement. CAT 
LLC also will make publicly available on the CAT website the total 
costs to be collected from Industry Members for Historical CAT 
Assessment 1. By reviewing statistics regarding how much has been 
invoiced and how much remains to be invoiced for Historical CAT 
Assessment 1, Industry Members would have sufficient information to 
reasonably track how much longer Historical CAT Assessment 1 is likely 
to be in place.
---------------------------------------------------------------------------

    \95\ Section 11.3(a)(iv)(B) of the CAT NMS Plan. In approving 
the CAT Funding Model, the Commission stated that ``[t]he 
publication of the aggregate executed equivalent share volume and 
aggregate fee is appropriate because it would allow Participants and 
CAT Executing Brokers a high-level validation of executed volume and 
fees.'' See CAT Funding Model Approval Order, 88 FR 62628, 62667.
---------------------------------------------------------------------------

(8) Implementation Assistance
    To assist Industry Members with compliance with the commencement of 
Historical CAT Assessment 1, CAT LLC will make available to CAT 
Executing Brokers four months of mock invoices prior to the 
commencement of Historical CAT Assessment 1. Specifically, CAT 
Executing Brokers will receive mock invoices based on transaction data 
from November 2023, December 2023, January 2024 and February 2024. The 
mock invoices will be in the same form as the actual, payable invoices, 
including both the relevant transaction data and the corresponding fee. 
However, no payments will be required in response to such mock 
invoices; they are to be used solely to assist CAT Executing Brokers 
with the development of their processes for paying the CAT fees. Such 
data will provide CAT Executing Brokers with a preview of the 
transaction data used in creating the invoices for Historical CAT 
Assessment 1 fees, as the data will be the same as data provided in 
actual invoices. Such data preview is intended to facilitate the 
payment of Historical CAT Assessment 1.
(9) Financial Accountability Milestones
    The CAT NMS Plan states that ``[n]o Participant will make a filing 
with the SEC pursuant to Section 19(b) of the Exchange Act regarding 
any Historical CAT Assessment until any applicable Financial 
Accountability Milestone described in Section 11.6 has been 
satisfied.'' \96\ The CAT NMS Plan further states that ``in all filings 
submitted by the Participants to the Commission under Section 19(b) of 
the Exchange Act, to establish or implement Post-Amendment Industry 
Member Fees pursuant to this Article, . . . the Participants shall 
clearly indicate whether such fees are related to Post-Amendment 
Expenses incurred during Period 1, Period 2, Period 3, or Period 4.'' 
\97\ As discussed in detail below, all applicable Financial 
Accountability Milestones for Historical CAT Assessment 1--that is, 
Period 1, Period 2 and Period 3 of the Financial Accountability 
Milestones--have been satisfied. Furthermore, as discussed below, this 
filing clearly indicates that Historical CAT Assessment 1 relates to 
Post-Amendment Expenses incurred during Periods 1, 2 and 3 of the 
Financial Accountability Milestones.
---------------------------------------------------------------------------

    \96\ Section 11.3(b)(iii)(B)(III) of the CAT NMS Plan.
    \97\ Section 11.6(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

(A) Period 1 of the Financial Accountability Milestones
    In accordance with Section 11.6(b) of the CAT NMS Plan, Historical 
CAT Assessment 1 seeks to recover costs that are related to ``all fees, 
costs, and expenses (including legal and consulting fees, costs, and 
expenses) incurred by or for the Company in connection with the 
development, implementation and operation of the CAT from the effective 
date of [Section 11.6 of the CAT NMS Plan] until such time as Full 
Implementation of CAT NMS Plan Requirements has been achieved'' \98\ 
(``Post-Amendment Expenses'') incurred during FAM Period 1. FAM Period 
1 began on June 22, 2020, the effective date of Section 11.6 of the CAT 
NMS Plan, and concluded on July 31, 2020, the date of Initial Industry 
Member Core Equity and Options Reporting. Section 1.1 of the CAT NMS 
Plan defines ``Initial Industry Member Core Equity and Options 
Reporting'' as:
---------------------------------------------------------------------------

    \98\ Section 11.6 of the CAT NMS Plan.

    The reporting by Industry Members (excluding Small Industry 
Members that are not OATS reporters) of both: (a) equities 
transaction data, excluding Customer Account Information, Customer-
ID, and Customer Identifying Information; and (b) options 
transaction data, excluding Customer Account Information, Customer-
---------------------------------------------------------------------------
ID and Customer Identifying Information.

    Under Section 1.1 of the CAT NMS Plan, this Financial 
Accountability Milestone is considered complete as of the date 
identified in the Participants' Quarterly Progress Reports.\99\ As

[[Page 10876]]

indicated by the Participants' Quarterly Progress Report for the third 
quarter of 2020,\100\ Initial Industry Member Core Equity and Option 
Reporting was completed on schedule on July 22, 2020, which is prior to 
the July 31, 2020 deadline.
---------------------------------------------------------------------------

    \99\ The Quarterly Progress Reports are available at https://www.catnmsplan.com/implementation-plan.
    \100\ See CAT Q3 2020 Quarterly Progress Report (October 30, 
2020), https://catnmsplan.com/sites/default/files/2020-10/CAT-Q3-2020-QPR.pdf and Updated CAT Q3 2020 Quarterly Progress Report 
(January 29, 2021), https://catnmsplan.com/sites/default/files/2021-02/CAT-Q3-2020-QPR-Updated.pdf.
---------------------------------------------------------------------------

    Under the FAM Period 1 requirement of Initial Industry Member Core 
Equity and Options Reporting, Industry Members--excluding Small 
Industry Members that are not OATS reporters--were required to report 
two categories of data to the CAT: equities transaction data and 
options transaction data (both excluding Customer Account Information, 
Customer-ID, and Customer Identifying Information) by July 31, 2020. 
Pursuant to exemptive relief provided by the Commission, the Commission 
authorized the Participants' Compliance Rules to allow core equity 
reporting for Industry Members (Phase 2a) to begin on June 22, 2020 and 
core options reporting for Industry Members (Phase 2b) to begin on July 
20, 2020.\101\
---------------------------------------------------------------------------

    \101\ See Phased Reporting Exemptive Relief Order, supra, note 
33. Under the CAT NMS Plan as adopted, the Participants were 
required, through their Compliance Rules, to require their Large 
Industry Members to commence reporting Industry Member Data to the 
Central Repository by November 15, 2018, and to require their Small 
Industry Members to commence reporting Industry Member Data to the 
Central Repository by November 15, 2019. See Sections 6.7(a)(v) and 
(vi) of the CAT NMS Plan. The SEC granted exemptive relief from 
these provisions of the CAT NMS Plan to allow for the phased 
implementation of Industry Member reporting via five phases 
addressing the reporting requirements for Phase 2a Industry Member 
Data, Phase 2b Industry Member Data, Phase 2c Industry Member Data, 
Phase 2d Industry Member Data and Phase 2e Industry Member Data.
---------------------------------------------------------------------------

    In adopting the FAMs, the Commission stated that the equities 
transaction reporting required for FAM Period 1 ``is consistent with 
the functionality that the Participants describe on the CAT NMS Plan 
website as `Production Go-Live for Equities 2a file submission and data 
integrity validations.' '' \102\ The Phase 2a Industry Member Data is 
described in detail in the SEC's Phased Reporting Exemptive Relief 
Order, and includes the following data related to Eligible Securities 
that are equities:
---------------------------------------------------------------------------

    \102\ Securities Exchange Act Rel. No. 88890, 85 FR 31322, 31330 
n.97 (``FAM Adopting Release'').
---------------------------------------------------------------------------

     All events and scenarios covered by OATS, which includes 
information related to the receipt or origination of orders, order 
transmittal, and order modifications, cancellations and executions;
     Reportable Events for: (1) proprietary orders, including 
market maker orders, for Eligible Securities that are equities; (2) 
electronic quotes in listed equity Eligible Securities (i.e., NMS 
stocks) sent to a national securities exchange or FINRA's Alternative 
Display Facility (``ADF''); (3) electronic quotes in unlisted Eligible 
Securities (i.e., OTC Equity Securities) received by an Industry Member 
operating an interdealer quotation system (``IDQS''); and (4) 
electronic quotes in unlisted Eligible Securities sent to an IDQS or 
other quotation system not operated by a Participant or Industry 
Member;
     Firm Designated IDs (``FDIDs''), which Industry Members 
must report to the CAT as required by Sections 6.3(d)(i)(A) and 
6.4(d)(ii)(C) of the CAT NMS Plan.
     Industry Members would be required to report all street 
side representative orders, including both agency and proprietary 
orders and mark such orders as representative orders, except in certain 
limited exceptions as described in the Industry Member Technical 
Specifications;
     The link between the street side representative order and 
the order being represented when: (1) the representative order was 
originated specifically to represent a single order received either 
from a customer or another broker-dealer; and (2) there is (a) an 
existing direct electronic link in the Industry Member's system between 
the order being represented and the representative order and (b) any 
resulting executions are immediately and automatically applied to the 
represented order in the Industry Member's system;
     Manual and Electronic Capture Time for Manual Order 
Events;
     Special handling instructions for the original receipt or 
origination of an order during Phase 2a; and
     When routing an order, whether the order was routed as an 
intermarket sweep order (``ISO'').
    In Phase 2a, Industry Members were not required to report 
modifications of a previously routed order in certain limited 
instances, nor were they required to report a cancellation of an order 
received from a Customer after the order has been executed.\103\
---------------------------------------------------------------------------

    \103\ See Phased Reporting Exemptive Relief Order, 85 FR 23075, 
23076-78.
---------------------------------------------------------------------------

    The Quarterly Progress Report for the third quarter of 2020 states 
that ``Interim Step: Production Go-Live for Equities 2a file submission 
and data integrity validation (Large Industry Members and Small OATS 
Reporters)'' was completed on June 22, 2020. Accordingly, the FAM 
Period 1 requirement of reporting by Industry Members (excluding Small 
Industry Members that are not OATS reporters) of ``equities transaction 
data, excluding Customer Account Information, Customer-ID, and Customer 
Identifying Information'' was completed on June 22, 2020.
    In adopting the FAMs, the Commission stated that the options 
transaction reporting required for FAM Period 1 is ``consistent with 
the functionality that the Participants describe on the CAT NMS Plan 
website as `Production Go-Live for Options 2b file submission and data 
integrity validations.' '' \104\ The Phase 2b Industry Member Data is 
described in detail in the SEC's Phased Reporting Exemptive Relief 
Order, and includes the Industry Member Data related to Eligible 
Securities that are options and related to simple electronic option 
orders, excluding electronic paired option orders. A simple electronic 
option order is an order to buy or sell a single option that is not 
related to or dependent on any other transaction for pricing and timing 
of execution that is either received or routed electronically by an 
Industry Member. Electronic receipt of an order is defined as the 
initial receipt of an order by an Industry Member in electronic form in 
standard format directly into an order handling or execution system. 
Electronic routing of an order is the routing of an order via 
electronic medium in standard format from one Industry Member's order 
handling or execution system to an exchange or another Industry Member. 
An electronic paired option order is an electronic option order that 
contains both the buy and sell side that is routed to another Industry 
Member or exchange for crossing and/or price improvement as a single 
transaction on an exchange. Responses to auctions of simple orders and 
paired simple orders would be reportable in Phase 2b. Furthermore, 
combined orders in options would be treated in Phase 2b in the same way 
as equity representative orders are treated in Phase 2a. A combined 
order would mean, as permitted by SRO rules, a single, simple order in 
Listed Options created by combining individual, simple orders in Listed 
Options from a customer with the same exchange origin code before 
routing to an exchange. During Phase 2b, the single combined order sent 
to an exchange must be reported and marked as a combined order, but the 
linkage to the underlying

[[Page 10877]]

orders is not required to be reported until Phase 2d.\105\
---------------------------------------------------------------------------

    \104\ See FAM Adopting Release, 85 FR 31322, 31330 n.98.
    \105\ See Phased Reporting Exemptive Relief Order, 85 FR 23075, 
23078.
---------------------------------------------------------------------------

    The Quarterly Progress Report for the third quarter of 2020 states 
that ``Interim Step: Production Go-Live for Options 2b file submission 
and data integrity validations'' was completed on July 20, 2020. 
Accordingly, the FAM Period 1 requirement of reporting by Industry 
Members (excluding Small Industry Members that are not OATS reporters) 
of ``options transaction data, excluding Customer Account Information, 
Customer-ID and Customer Identifying Information'' was completed on 
July 20, 2020.
    As discussed above, the Historical CAT Costs 1 to be recovered via 
Historical CAT Assessment 1 would include fees, costs and expenses 
incurred by or for the Company in connection with the development, 
implementation and operation of the CAT during the period from June 22, 
2020 through July 31, 2020. The total costs for this period, as 
discussed above, are $6,377,343. Participants would remain responsible 
for one-third of this cost (which they have previously paid), and 
Industry Members would be responsible for the remaining two-thirds, 
with CEBBs paying one-third ($2,125,781) and CEBSs paying one-third 
($2,125,781).
(B) Period 2 of the Financial Accountability Milestones
    Historical CAT Assessment 1 seeks to recover costs that are related 
to Post-Amendment Expenses incurred during FAM Period 2. FAM Period 2 
began on August 1, 2020, and concluded on December 31, 2020, the date 
of the Full Implementation of Core Equity Reporting. Section 1.1 of the 
CAT NMS Plan defines ``Full Implementation of Core Equity Reporting'' 
as:

the point at which: (a) Industry Member reporting (excluding 
reporting by Small Industry Members that are not OATS reporters) for 
equities transactions, excluding Customer Account Information, 
Customer-ID, and Customer Identifying Information, is developed, 
tested, and implemented at a 5% Error Rate or less and with 
sufficient intra-firm linkage, inter-firm linkage, national 
securities exchange linkage, and trade reporting facilities linkage 
to permit the Participants and the Commission to analyze the full 
lifecycle of an order across the national market system, excluding 
linkage of representative orders, from order origination through 
order execution or order cancellation; and (b) the query tool 
functionality required by Section 6.10(c)(i)(A) and Appendix D, 
Sections 8.1.1-8.1.3 and Section 8.2.1 incorporates the Industry 
Member equities transaction data described in condition (a) and is 
available to the Participants and to the Commission. This Financial 
Accountability Milestone shall be considered complete as of the date 
identified in a Quarterly Progress Report meeting the requirements 
of Section 6.6(c).

    Under Section 1.1 of the CAT NMS Plan, this Financial 
Accountability Milestone is considered complete as of the date 
identified in the Participants' Quarterly Progress Reports. As 
indicated by the Participants' Quarterly Progress Report for the fourth 
quarter of 2020,\106\ Full Implementation of Core Equity Reporting was 
completed on schedule by December 31, 2020.
---------------------------------------------------------------------------

    \106\ See CAT Q4 2020 Quarterly Progress Report (January 29, 
2021), https://catnmsplan.com/sites/default/files/2021-02/CAT-Q4-2020-QPR.pdf.
---------------------------------------------------------------------------

    Specifically, the Full Implementation of Core Equity Reporting 
requires the satisfaction of two prongs. The first prong requires 
Participants to have fully implemented the first phase of equities 
transaction reporting for Industry Members (excluding Small Industry 
Members that are not OATS reporters) at an Error Rate of less than 5%. 
In addition, equities transaction data produced by the CAT at this 
stage must also be sufficiently interlinked so as to permit full 
analysis of an order's lifecycle across the national market, excluding 
full linkage of representative orders. As CAT LLC reported on its 
Quarterly Progress Reports, Phase 2a was fully implemented as of 
October 26, 2020, including intra-firm, inter-firm, national securities 
exchange, and trade reporting facilities linkages.\107\ In addition to 
the reporting of Phase 2a Industry Member Data as described above with 
regard to FAM Period 1, the following linkage data was added to the CAT 
as described in the Quarterly Progress Reports for the third and fourth 
quarter of 2020:
---------------------------------------------------------------------------

    \107\ F For a description of the requirements of Phases 2a, see 
Phased Reporting Exemptive Relief Order, supra note 33.
---------------------------------------------------------------------------

     ``Production Go-Live for Equities 2a Intrafirm Linkage 
validations'' was completed on 7/27/2020; \108\
---------------------------------------------------------------------------

    \108\ See CAT Q3 2020 Quarterly Progress Report (October 30, 
2021), https://catnmsplan.com/sites/default/files/2020-10/CAT-Q3-2020-QPR.pdf.
---------------------------------------------------------------------------

     ``Production Go-Live for Firm to Firm Linkage validations 
for Equities 2a (Large Industry Members and Small OATS Reporters)'' was 
completed on October 26, 2020; and
     ``Production Go-Live for Equities 2a Exchange and TRF 
Linkage validations (Large Industry Members and Small OATS Reporters)'' 
was completed on October 26, 2020.
    Furthermore, as CAT LLC reported on its Quarterly Progress Report 
for the fourth quarter of 2020, the average overall error rate for 
Phase 2a Industry Member Data was less than 5% as of December 31, 2020. 
The average overall error rate was calculated by dividing the 
compliance errors by processed records.
    The second prong of this FAM requires that the equities transaction 
data collected by the CAT at this stage be made available to regulators 
through two basic query tools required by the CAT NMS Plan--a targeted 
query tool that will enable regulators to retrieve data via an online 
query screen with a variety of predefined selection criteria, and a 
user-defined direct query tool that will provide regulators with the 
ability to query data using all available attributes and data 
sources.\109\ As CAT LLC reported on its Quarterly Progress Reports, 
the query tool functionality incorporating the data from Phase 2a was 
available to the Participants and the Commission as of December 31, 
2020.\110\
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    \109\ Section 6.10(c)(i)(A) of the CAT NMS Plan requires the 
Plan Processor to ``provide Participants and the SEC with access to 
all CAT Data stored in the Central Repository'' via an ``online 
targeted query tool.'' Appendix D, Sections 8.1.1-8.1.3 of the CAT 
NMS Plan describes the required functionality associated with this 
regulatory tool. Appendix D, Section 8.2.1 describes the required 
functionality associated with a user-defined direct query tool that 
will ``deliver large sets of data that can then be used in internal 
surveillance or market analysis applications.''
    \110\ See Q3 2020 Quarterly Progress Report (October 30, 2020); 
Updated Q3 2020 Quarterly Progress Report (January 29, 2021); and Q4 
2020 Quarterly Progress Report (January 29, 2021).
---------------------------------------------------------------------------

    The Commission has determined that the Participants have 
sufficiently complied with the conditions set forth in the 2020 Orders 
and with the technical requirements for Quarterly Progress Reports set 
forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining 
compliance with this FAM.\111\
---------------------------------------------------------------------------

    \111\ See Securities Exchange Act Release No. 98848 (November 2, 
2023), 88 FR 77128, 77129 n.13 (November 8, 2023) (``Settlement 
Exemptive Order'').
---------------------------------------------------------------------------

    As discussed above, Historical CAT Costs 1 to be recovered via 
Historical CAT Assessment 1 would include fees, costs and expenses 
incurred by or for the Company in connection with the development, 
implementation and operation of the CAT during the period from August 
1, 2020 through December 31, 2020. The total costs for this period, as 
discussed above, are $42,976,478. Participants would remain responsible 
for one-third of this cost (which they have previously paid), and 
Industry Members would be responsible for the remaining two-thirds, 
with CEBBs paying one-third ($14,325,492.70) and CEBSs paying one-third 
($14,325,492.70).

[[Page 10878]]

(C) Period 3 of the Financial Accountability Milestones
    Historical CAT Assessment 1 seeks to recover costs that are related 
to Post-Amendment Expenses incurred during FAM Period 3. FAM Period 3 
began on January 1, 2021, and concluded on December 31, 2021, the date 
of the Full Availability and Regulatory Utilization of Transactional 
Database Functionality. Section 1.1 of the CAT NMS Plan defines ``Full 
Availability and Regulatory Utilization of Transactional Database 
Functionality'' as:

the point at which: (a) reporting to the Order Audit Trail System 
(``OATS'') is no longer required for new orders; (b) Industry Member 
reporting for equities transactions and simple electronic options 
transactions, excluding Customer Account Information, Customer-ID, 
and Customer Identifying Information, with sufficient intra-firm 
linkage, inter-firm linkage, national securities exchange linkage, 
trade reporting facilities linkage, and representative order 
linkages (including any equities allocation information provided in 
an Allocation Report) to permit the Participants and the Commission 
to analyze the full lifecycle of an order across the national market 
system, from order origination through order execution or order 
cancellation, is developed, tested, and implemented at a 5% Error 
Rate or less; (c) Industry Member reporting for manual options 
transactions and complex options transactions, excluding Customer 
Account Information, Customer-ID, and Customer Identifying 
Information, with all required linkages to permit the Participants 
and the Commission to analyze the full lifecycle of an order across 
the national market system, from order origination through order 
execution or order cancellation, including any options allocation 
information provided in an Allocation Report, is developed, tested, 
and fully implemented; (d) the query tool functionality required by 
Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1-8.1.3, Section 
8.2.1, and Section 8.5 incorporates the data described in conditions 
(b)-(c) and is available to the Participants and to the Commission; 
and (e) the requirements of Section 6.10(a) are met. This Financial 
Accountability Milestone shall be considered complete as of the date 
identified in a Quarterly Progress Report meeting the requirements 
of Section 6.6(c).

    Under Section 1.1 of the CAT NMS Plan, this Financial 
Accountability Milestone is considered complete as of the date 
identified in the Participants' Quarterly Progress Reports. As 
indicated by the Participants' Quarterly Progress Report for the fourth 
quarter of 2021,\112\ Full Availability and Regulatory Utilization of 
Transactional Database Functionality was completed on schedule by 
December 31, 2021.
---------------------------------------------------------------------------

    \112\ Q4 2021 Quarterly Progress Report (Jan. 17, 2022).
---------------------------------------------------------------------------

    Specifically, the ``Full Availability and Regulatory Utilization of 
Transactional Database Functionality'' requires the satisfaction of 
five prongs. The first prong requires that reporting to the Order Audit 
Trail System (``OATS'') is no longer required for new orders. As CAT 
LLC reported on its Quarterly Progress Report for the fourth quarter of 
2021,\113\ FINRA retired OATS effective September 1, 2021.\114\ 
Accordingly, after the retirement of OATS, reporting to OATS was no 
longer required.
---------------------------------------------------------------------------

    \113\ See supra note 111.
    \114\ See Securities Exchange Act Release No. 92239 (June 23, 
2021), 86 FR 34293 (June 29, 2021) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2021-017).
---------------------------------------------------------------------------

    In addition to Phase 2a and Phase 2b Industry Member Data, the 
second and third prongs of ``Full Availability and Regulatory 
Utilization of Transactional Database Functionality'' require Industry 
Member reporting of Phase 2c Industry Member Data and Phase 2d Industry 
Member Data. The Phase 2c Industry Member Data is described in detail 
in the SEC's Phased Reporting Exemptive Relief Order. That Order states 
that ``Phase 2c Industry Member Data'' is Industry Member Data related 
to Eligible Securities that are equities other than Phase 2a Industry 
Member Data, Phase 2d Industry Member Data, or Phase 2e Industry Member 
Data. Specifically, the Phase 2c Industry Member Data includes Industry 
Member Data that is related to Eligible Securities that are equities 
and that is related to: (1) Allocation Reports as required to be 
recorded and reported to the Central Repository pursuant to Section 
6.4(d)(ii)(A)(1) of the CAT NMS Plan; (2) quotes in unlisted Eligible 
Securities sent to an IDQS operated by a CAT Reporter (reportable by 
the Industry Member sending the quotes) (except for quotes reportable 
in Phase 2d, as discussed below); (3) electronic quotes in listed 
equity Eligible Securities (i.e., NMS stocks) that are not sent to a 
national securities exchange or FINRA's Alternative Display Facility; 
(4) reporting changes to client instructions regarding modifications to 
algorithms; (5) marking as a representative order any order originated 
to work a customer order in price guarantee scenarios, such as a 
guaranteed VWAP; (6) flagging rejected external routes to indicate a 
route was not accepted by the receiving destination; (7) linkage of 
duplicate electronic messages related to a Manual Order Event between 
the electronic event and the original manual route; (8) special 
handling instructions on order route reports (other than the ISO, which 
is required to be reported in Phase 2a); (9) quote identifier on trade 
events; (10) reporting of LTIDs (if applicable) for accounts with 
Reportable Events that are reportable to CAT as of and including Phase 
2c; (11) reporting of date account opened or Account Effective Date17 
(as applicable) for accounts and reporting of a flag indicating the 
Firm Designated ID type as account or relationship; (12) order 
effective time for orders that are received by an Industry Member and 
do not become effective until a later time; (13) the modification or 
cancellation of an internal route of an order; and (14) linkages to the 
customer orders(s) being represented for representative order 
scenarios, including agency average price trades, net trades, 
aggregated orders, and disconnected Order Management System (``OMS'')--
Execution Management System (``EMS'') scenarios, as required in the 
Industry Member Technical Specifications.\115\
---------------------------------------------------------------------------

    \115\ See Phase Reporting Exemptive Relief Order, 85 FR 23075, 
23078-79.
---------------------------------------------------------------------------

    Phase 2c Industry Member Data also includes electronic quotes that 
are provided by or received in a CAT Reporter's order/quote handling or 
execution systems in Eligible Securities that are equities and are 
provided by an Industry Member to other market participants off a 
national securities exchange under the following conditions: (1) an 
equity bid or offer is displayed publicly or has been communicated (a) 
for listed securities to the Alternative Display Facility (ADF) 
operated by FINRA; or (b) for unlisted equity securities to an 
``interdealer quotation system,'' as defined in FINRA Rule 6420(c); or 
(2) an equity bid or offer which is accessible electronically by 
customers or other market participants and is immediately actionable 
for execution or routing; i.e., no further manual or electronic action 
is required by the responder providing the quote in order to execute or 
cause a trade to be executed). With respect to OTC Equity Securities, 
OTC Equity Securities quotes sent by an Industry Member to an IDQS 
operated by an Industry Member CAT Reporter (other than such an IDQS 
that does not match and execute orders) are reportable by the Industry 
Member sending them in Phase 2c. Accordingly, any response to a request 
for quote or other form of solicitation response provided in a standard 
electronic format (e.g., FIX) that meets this quote definition (i.e., 
an equity bid or offer which is accessible electronically by customers 
or other market participants and is immediately actionable for 
execution or routing) would be reportable in Phase 2c.\116\
---------------------------------------------------------------------------

    \116\ See supra note 114, at 23079.

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[[Page 10879]]

    The Phase 2d Industry Member Data is described in detail in the 
SEC's Phased Reporting Exemptive Relief Order. ``Phase 2d Industry 
Member Data'' is Industry Member Data that is related to Eligible 
Securities that are options other than Phase 2b Industry Member Data, 
Industry Member Data that is related to Eligible Securities that are 
equities other than Phase 2a Industry Member Data or Phase 2c Industry 
Member Data, and Industry Member Data other than Phase 2e Industry 
Member Data. Phase 2d Industry Member Data includes with respect to the 
Eligible Securities that are options: (1) simple manual orders; (2) 
electronic and manual paired orders; (3) all complex orders with 
linkages to all CAT-reportable legs; (4) LTIDs (if applicable) for 
accounts with Reportable Events for Phase 2d; (5) date account opened 
or Account Effective Date (as applicable) for accounts with an LTID and 
flag indicating the Firm Designated ID type as account or relationship 
for such accounts; (6) Allocation Reports as required to be recorded 
and reported to the Central Repository pursuant to Section 
6.4(d)(ii)(A)(1) of the CAT NMS Plan; (7) the modification or 
cancellation of an internal route of an order; and (8) linkage between 
a combined order and the original customer orders. Phase 2d Industry 
Member Data also would include electronic quotes that are provided by 
or received in a CAT Reporter's order/quote handling or execution 
systems in Eligible Securities that are options and are provided by an 
Industry Member to other market participants off a national securities 
exchange under the following conditions: a listed option bid or offer 
which is accessible electronically by customers or other market 
participants and is immediately actionable (i.e., no further action is 
required by the responder providing the quote in order to execute or 
cause a trade to be executed). Accordingly, any response to a request 
for quote or other form of solicitation response provided in standard 
electronic format (e.g., FIX) that meets this definition is reportable 
in Phase 2d for options.\117\
---------------------------------------------------------------------------

    \117\ See supra note 114.
---------------------------------------------------------------------------

    Phase 2d Industry Member Data also includes with respect to 
Eligible Securities that are options or equities (1) receipt time of 
cancellation and modification instructions through Order Cancel Request 
and Order Modification Request events; (2) modifications of previously 
routed orders in certain instances; and (3) OTC Equity Securities 
quotes sent by an Industry Member to an IDQS operated by an Industry 
Member CAT Reporter that does not match and execute orders. In 
addition, subject to any exemptive or other relief, Phase 2d Industry 
Member Data will include verbal or manual quotes on an exchange floor 
or in the over-the-counter market, where verbal quotes and manual 
quotes are defined as bids or offers in Eligible Securities provided 
verbally or that are provided or received other than via a CAT 
Reporter's order handling and execution system (e.g., quotations 
provided via email or instant messaging).\118\
---------------------------------------------------------------------------

    \118\ See supra note 114, at 23079-80.
---------------------------------------------------------------------------

    The Quarterly Progress Report for the fourth quarter of 2021 states 
that ``Phase 2a was fully implemented as of October 26, 2020;'' ``Phase 
2b was fully implemented as of January 4, 2021;'' ``Phase 2c was 
implemented as of April 26, 2021;'' and ``Phase 2d was fully 
implemented as of December 13, 2021.'' \119\ The Quarterly Progress 
Reports for 2021 provide additional detail regarding the implementation 
of these steps including the following:
---------------------------------------------------------------------------

    \119\ See CAT Q4 2021 Quarterly Progress Report (January 27, 
2022), https://catnmsplan.com/sites/default/files/2022-01/CAT-Q4-2021-QPR.pdf.
---------------------------------------------------------------------------

     ``Production Go-Live for Equities 2c reporting 
requirements (Large Industry Members)'' was completed on April 26, 
2021;
     ``LTID Account Information Reporting Go-Live for Phases 
2a, 2b and 2c (Large Industry Members)'' was completed on April 26, 
2021;
     ``FCAT Plan Processor creates linkages of the lifecycle of 
order events based on the received data through Phase 2d Production Go-
Live for Options 2d reporting requirements (Large Industry Members)'' 
was completed on December 13, 2021;
     ``Production Go-Live for Options 2d reporting requirements 
(Large Industry Members)'' was completed on December 13, 2021;
     ``Production Go-Live for Options 2b reporting requirements 
(Small OATS Reporters and Small Non-OATS Reporters)'' was completed on 
December 13, 2021;
     ``Production Go-Live for Equities 2c reporting 
requirements (Small OATS Reporters and Small Non-OATS Reporters)'' was 
completed on December 13, 2021;
     ``Production Go-Live for Options 2d reporting requirements 
(Small OATS Reporters and Small Non-OATS Reporters)'' was completed on 
December 13, 2021;
     ``LTID Account Information Reporting Go-Live for Phases 2d 
(Large Industry Members)'' was completed on December 13, 2021; and
     ````LTID Account Information Reporting Go-Live for Phases 
2a, 2b, 2c and 2d (Small Industry Members)'' was completed on December 
13, 2021.\120\
---------------------------------------------------------------------------

    \120\ See CAT Q2 2021 Quarterly Progress Report (July 27, 2021), 
https://catnmsplan.com/sites/default/files/2021-07/CAT-Q2-2021-QPR.pdf; and CAT Q4 2021 Quarterly Progress Report (Jan. 27, 2022), 
https://catnmsplan.com/sites/default/files/2022-01/CAT-Q4-2021-QPR.pdf.
---------------------------------------------------------------------------

    The third prong of ``Full Availability and Regulatory Utilization 
of Transactional Database Functionality'' also imposes an Error Rate 
requirement of 5% or less. The Quarterly Progress Report for the fourth 
quarter of 2021 states the average overall error rate was less than 5% 
as of December 31, 2021. The average overall error rate was calculated 
by dividing the compliance errors by processed records.
    The fourth prong of ``Full Availability and Regulatory Utilization 
of Transactional Database Functionality'' requires that the data 
collected by the CAT at this stage be made available to regulators 
through an online targeted query tool, and a user-defined direct query 
tool. As CAT LLC reported on its Quarterly Progress Report for the 
fourth quarter of 2021, the query tool functionality incorporating the 
data from Phases 2a, 2b, 2c and 2d was available to the Participants 
and to the Commission as of December 31, 2021.\121\
---------------------------------------------------------------------------

    \121\ See CAT Q4 2021 Quarterly Progress Report (Jan. 27, 2022), 
https://catnmsplan.com/sites/default/files/2022-01/CAT-Q4-2021-QPR.pdf.
---------------------------------------------------------------------------

    The fifth prong requires the requirements of Section 6.10(a) of the 
CAT NMS Plan to have been met. Section 6.10(a) of the CAT NMS Plan 
requires the Participants to use the tools described in Appendix D to 
``develop and implement a surveillance system, or enhance existing 
surveillance systems, reasonably designed to make use of the 
consolidated information contained in the Central Repository.'' FINRA 
implemented a surveillance system, or enhanced existing surveillance 
systems, reasonably designed to make use of the consolidated 
information contained in the Central Repository as of December 31, 2021 
in accordance with Section 6.10(a) of the CAT NMS Plan.\122\
---------------------------------------------------------------------------

    \122\ See Q1 2021 Quarterly Progress Report (April 30, 2021); Q2 
2021 Quarterly Progress Report (July 27, 2021); Q3 2021 Quarterly 
Progress Report (November 1, 2021); Q4 2021 Quarterly Progress 
Report (January 27, 2022).
---------------------------------------------------------------------------

    The Commission has determined that the Participants have 
sufficiently complied with the conditions set forth in the 2020 Orders 
and with the technical requirements for Quarterly Progress Reports set 
forth in Section 6.6(c) of the CAT NMS Plan for

[[Page 10880]]

purposes of determining compliance with this FAM.\123\
---------------------------------------------------------------------------

    \123\ See Settlement Exemptive Order, 88 FR 77128, 77129 n.13.
---------------------------------------------------------------------------

    As discussed above, Historical CAT Costs 1 to be recovered via 
Historical CAT Assessment 1 would include fees, costs and expenses 
incurred by or for the Company in connection with the development, 
implementation and operation of the CAT during the period from January 
1, 2021 through December 31, 2021. The total costs for this period, as 
discussed above, are $144,415,268. Participants would remain 
responsible for one-third of this cost (which they have previously 
paid), and Industry Members would be responsible for the remaining two-
thirds, with CEBBs paying one-third ($48,138,422.70) and CBSs paying 
one-third ($48,138,422.70).
    FINRA has filed the proposed rule change for immediate 
effectiveness.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\124\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest, and not designed to permit unfair discrimination 
between customers, issuers, brokers and dealers. FINRA also believes 
that the proposed rule change is consistent with the provisions of 
Section 15A(b)(5) of the Act,\125\ which requires, among other things, 
that FINRA rules provide for the equitable allocation of reasonable 
dues, fees and other charges among members and issuers and other 
persons using any facility or system that FINRA operates or controls. 
FINRA further believes that the proposed rule change is consistent with 
Section 15A(b)(9) of the Act,\126\ which requires that FINRA rules not 
impose any burden on competition that is not necessary or appropriate. 
Section 15A(b)(2) of the Act also requires that FINRA be ``so organized 
and [have] the capacity to be able to carry out the purposes'' of the 
Act and ``to comply, and . . . to enforce compliance by its members, 
and persons associated with its members,'' with the provisions of the 
Exchange Act.\127\
---------------------------------------------------------------------------

    \124\ 15 U.S.C. 78o-3(b)(6).
    \125\ 15 U.S.C. 78o-3(b)(5).
    \126\ 15 U.S.C. 78o-3(b)(9).
    \127\ See 15 U.S.C. 78o-3(b)(2).
---------------------------------------------------------------------------

    FINRA believes that this proposal is consistent with the Act 
because it implements provisions of the Plan and is designed to assist 
FINRA in meeting regulatory obligations pursuant to the Plan. In 
approving the Plan, the SEC noted that the Plan ``is necessary and 
appropriate in the public interest, for the protection of investors and 
the maintenance of fair and orderly markets, to remove impediments to, 
and perfect the mechanism of a national market system, or is otherwise 
in furtherance of the purposes of the Act.'' \128\ To the extent that 
this proposal implements the Plan and applies specific requirements to 
Industry Members, FINRA believes that this proposal furthers the 
objectives of the Plan, as identified by the SEC, and is therefore 
consistent with the Act.
---------------------------------------------------------------------------

    \128\ See CAT NMS Plan Approval Order, 81 FR 84696, 84697.
---------------------------------------------------------------------------

    FINRA believes that the proposed fees paid by the CEBBs and CEBSs 
are reasonable, equitably allocated and not unfairly discriminatory. 
FINRA has already incurred development and implementation costs and the 
proposed Historical CAT Assessment 1 fees, therefore, would allow FINRA 
to collect certain of such costs in a fair and reasonable manner from 
Industry Members, as contemplated by the CAT NMS Plan.
    The proposed Historical CAT Assessment 1 fees would be charged to 
Industry Members in support of the maintenance of a consolidated audit 
trail for regulatory purposes. The proposed fees, therefore, are 
consistent with the Commission's view that regulatory fees be used for 
regulatory purposes. The proposed fees would not cover FINRA services 
unrelated to the CAT. In addition, any surplus would be used as a 
reserve to offset future fees.
    As further discussed below, the SEC approved the CAT Funding Model, 
finding it was reasonable and that it equitably allocates fees among 
Participants and Industry Members. Thus, FINRA believes that the 
proposed fees adopted pursuant to the CAT Funding Model approved by the 
SEC are reasonable, equitably allocated and not unfairly 
discriminatory.
(1) Implementation of CAT Funding Model in CAT NMS Plan
    Section 11.1(b) of the CAT NMS Plan states that ``[t]he 
Participants shall file with the SEC under Section 19(b) of the 
Exchange Act any such fees on Industry Members that the Operating 
Committee approves.'' Per Section 11.1(b) of the CAT NMS Plan, FINRA 
has filed this fee filing to implement the Industry Member CAT fees 
included in the CAT Funding Model. FINRA believes that this proposal is 
consistent with the Exchange Act because it is consistent with, and 
implements, the CAT Funding Model in the CAT NMS Plan, and is designed 
to assist FINRA and its Industry Members in meeting regulatory 
obligations pursuant to the CAT NMS Plan. In approving the CAT NMS 
Plan, the SEC noted that the Plan ``is necessary and appropriate in the 
public interest, for the protection of investors and the maintenance of 
fair and orderly markets, to remove impediments to, and perfect the 
mechanism of a national market system, or is otherwise in furtherance 
of the purposes of the Act.'' \129\ Similarly, in approving the CAT 
Funding Model, the SEC concluded that the CAT Funding Model met this 
standard.\130\ As this proposal implements the Plan and the CAT Funding 
Model described therein, and applies specific requirements to Industry 
Members in compliance with the Plan, FINRA believes that this proposal 
furthers the objectives of the Plan, as identified by the SEC, and is 
therefore consistent with the Exchange Act.
---------------------------------------------------------------------------

    \129\ See supra note 127.
    \130\ See CAT Funding Model Approval Order, 88 FR 62628, 62686.
---------------------------------------------------------------------------

(2) Calculation of Fee Rate for Historical CAT Assessment 1 Is 
Reasonable
    The SEC has determined that the CAT Funding Model is reasonable and 
satisfies the requirements of the Exchange Act. Specifically, the SEC 
has concluded that the method for determining Historical CAT 
Assessments as set forth in Section 11.3 of the CAT NMS Plan, including 
the formula for calculating the Historical Fee Rate, the identification 
of the parties responsible for payment and the transactions subject to 
the fee rate for the Historical CAT Assessment, is reasonable and 
satisfies the Exchange Act.\131\ In each respect, as discussed above, 
Historical CAT Assessment 1 is calculated, and would be applied, in 
accordance with the requirements applicable to Historical CAT 
Assessments as set forth in the CAT NMS Plan and, therefore, is 
reasonable and consistent with the Exchange Act. Calculation of the 
Historical Fee Rate for Historical CAT Assessment 1 requires the 
figures for the Historical CAT Costs 1, the executed equivalent share 
volume for the prior twelve months, the determination of Historical 
Recovery Period 1, and the projection of the executed equivalent share 
volume for Historical Recovery Period 1. Each of these variables is 
reasonable and satisfies the Exchange Act, as discussed throughout this 
filing.
---------------------------------------------------------------------------

    \131\ See CAT Funding Model Approval Order, 88 FR 62628, 62662-
63.

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[[Page 10881]]

(A) Historical CAT Costs 1
    The formula for calculating a Historical Fee Rate requires the 
amount of Historical CAT Costs to be recovered. Specifically, Section 
11.3(b)(iii)(B)(II) of the CAT NMS Plan requires a fee filing to 
provide:

a brief description of the amount and type of the Historical CAT 
Costs, including (1) the technology line items of cloud hosting 
services, operating fees, CAIS operating fees, change request fees, 
and capitalized developed technology costs, (2) legal, (3) 
consulting, (4) insurance, (5) professional and administration and 
(6) public relations costs.

    In accordance with this requirement, FINRA has set forth the amount 
and type of Historical CAT Costs 1 for each of these categories of 
costs above.
    Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan also requires that 
the fee filing provide ``sufficient detail to demonstrate that the 
Historical CAT Costs are reasonable and appropriate.'' As discussed 
below, FINRA believes that the amounts set forth in this filing for 
each of these cost categories is ``reasonable and appropriate.'' Each 
of the costs included in Historical CAT Costs 1 are reasonable and 
appropriate because the costs are consistent with standard industry 
practice, based on the need to comply with the requirements of the CAT 
NMS Plan, incurred subject to negotiations performed on an arm's length 
basis, and/or are consistent with the needs of any legal entity, 
particularly one with no employees.
(i) Technology: Cloud Hosting Services
    In approving the CAT Funding Model, the Commission recognized that 
it is appropriate to recover costs related to cloud hosting services as 
a part of Historical CAT Assessments.\132\ CAT LLC determined that the 
costs related to cloud hosting services described in this filing are 
reasonable and should be included as a part of Historical CAT Costs 1. 
As described above, the cloud hosting services costs reflect, among 
other things, the breadth of the CAT cloud activities, data volume far 
in excess of the original volume estimates, the need for specialized 
cloud services given the volume and unique nature of the CAT, the 
processing time requirements of the Plan, and regular efforts to seek 
to minimize costs where permissible under the Plan. CAT LLC determined 
that use of cloud hosting services is necessary for implementation of 
the CAT, particularly given the substantial data volumes associated 
with the CAT, and that the fees for cloud hosting services negotiated 
by FCAT were reasonable, taking into consideration a variety of 
factors, including the expected volume of data and the breadth of 
services provided and market rates for similar services.\133\ Indeed, 
the actual costs of the CAT are far in excess of the original estimated 
costs of the CAT due to various factors, including the higher volumes 
and greater complexity of the CAT than anticipated when Rule 613 was 
originally adopted.
---------------------------------------------------------------------------

    \132\ Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan.
    \133\ For a discussion of the amount and type of cloud hosting 
services fees, see Items II.A.1.(2)(B)(i)(a), II.A.1.(2)(B)(ii)(a), 
II.A.1.(2)(B)(iii)(a) and II.A.1.(2)(B)(iv)(A) above.
---------------------------------------------------------------------------

    To comply with the requirements of the Plan, the breadth of the 
cloud activities related to the CAT is substantial. The cloud services 
not only include the production environment for the CAT, but they also 
include two industry testing environments, support environments for 
quality assurance and stress testing and disaster recovery 
capabilities. Moreover, the cloud storage costs are driven by the 
requirements of the Plan, which requires the storage of multiple 
versions of the data, from the original submitted version of the data 
through various processing steps, to the final version of the data.
    Data volume is a significant driver of costs for cloud hosting 
services. When the Commission adopted the CAT NMS Plan in 2016, it 
estimated that the CAT would need to receive 58 billion records per day 
\134\ and that annual operating costs for the CAT would range from 
$36.5 million to $55 million.\135\ Through 2021, the actual data 
volumes have been five times that original estimate. The data volumes 
for each period are set forth in detail above.\136\
---------------------------------------------------------------------------

    \134\ See CAT NMS Plan, Appendix D-4 n.262.
    \135\ See CAT NMS Plan Approval Order, 81 FR 84696, 84801.
    \136\ See Items II.A.1.(2)(B)(i)(a), II.A.1.(2)(B)(ii)(a), 
II.A.1.(2)(B)(iii)(a) and II.A.1.(2)(B)(iv)(A) above.
---------------------------------------------------------------------------

    In addition to the effect of the data volume on the cloud hosting 
costs, the processing timelines set forth in the Plan contribute to the 
cloud hosting costs. Although CAT LLC has proactively sought to manage 
cloud hosting costs while complying with the Plan, including through 
requests to the Commission for exemptive relief and an amendment to the 
CAT NMS Plan, stringent CAT NMS Plan requirements do not allow for any 
material flexibility in cloud architecture design choices, processing 
timelines (e.g., the use of non-peak processing windows), or lower-cost 
storage tiers. As a result, the required CAT processing timelines 
contribute to the cloud hosting costs of the CAT.
    The costs for cloud hosting services also reflect the need for 
specialized cloud hosting services given the data volume and unique 
processing needs of the CAT. The data volume as well as the data 
processing needs of the CAT necessitate the use of cloud hosting 
services. The equipment, power and services required for an on-premises 
data model, the alternative to cloud hosting services, would be cost 
prohibitive. Moreover, as CAT was being developed, there were limited 
cloud hosting providers that could satisfy all the necessary CAT 
requirements, including the operational and security criteria. Over 
time more providers offering cloud hosting services that would satisfy 
these criteria have entered the market. CAT LLC will continue to 
evaluate alternative cloud hosting services, recognizing that the time 
and cost to move to an alternative cloud provider would be substantial.
    The reasonableness of the cloud hosting services costs is further 
supported by key cost discipline mechanisms for the CAT--a cost-based 
funding structure, cost transparency, cost management efforts 
(including regular efforts to lower compute and storage costs where 
permitted by the Plan) and oversight. Together, these mechanisms help 
ensure the ongoing reasonableness of the CAT's costs and the level of 
fees assessed to support those costs.\137\
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    \137\ See Securities Exchange Act Release No. 97151 (March 15, 
2023), 88 FR 17086, 17117 (March 21, 2023) (describing key cost 
discipline mechanisms for the CAT).
---------------------------------------------------------------------------

(ii) Technology: Operating Fees
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to operating fees as a part of 
Historical CAT Assessments.\138\ CAT LLC determined that the costs 
related to operating fees described in this filing are reasonable and 
should be included as a part of Historical CAT Costs 1. The operating 
fees include the negotiated fees paid by CAT LLC to the Plan Processor 
to operate and maintain the system for order-related information and to 
perform business operations related to the system, including 
compliance, security, testing, training, communications with the 
industry (e.g., management of the FINRA CAT Helpdesk, FAQs, website and 
webinars) and program management. CAT LLC determined that the selection 
of FCAT as the Plan Processor was reasonable and appropriate given its 
expertise with securities regulatory reporting, after a

[[Page 10882]]

process of considering other potential candidates.\139\ CAT LLC also 
determined that the fixed price contract, negotiated on an arm's length 
basis with the goals of managing costs and receiving services required 
to comply with the CAT NMS Plan and Rule 613, was reasonable and 
appropriate, taking into consideration a variety of factors, including 
the breadth of services provided and market rates for similar types of 
activity.\140\ The services performed by FCAT for each period and the 
costs related to such services are described above.\141\
---------------------------------------------------------------------------

    \138\ Section 11.3(b)(iii)(B)(II)(1) of the CAT NMS Plan.
    \139\ See Item II.A.1.(2)(B)(i)(b) above.
    \140\ See Items II.A.1.(2)(B)(i)(b), II.A.1.(2)(B)(ii)(b), 
II.A.1.(2)(B)(iii)(b) and II.A.1.(2)(B)(iv)(b) above.
    \141\ See supra note 139.
---------------------------------------------------------------------------

(iii) Technology: CAIS Operating Fees
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to CAIS operating fees as a part 
of Historical CAT Assessments.\142\ CAT LLC determined that the costs 
related to CAIS operating fees described in this filing are reasonable 
and should be included as a part of Historical CAT Costs 1. The CAIS 
operating fees include the fees paid to the Plan Processor to operate 
and maintain CAIS and to perform the business operations related to the 
system, including compliance, security, testing, training, 
communications with the industry (e.g., management of the FINRA CAT 
Helpdesk, FAQs, website and webinars) and program management. CAT LLC 
determined that the FCAT-negotiated fees for Kingland's CAIS-related 
services, negotiated on an arm's length basis with the goals of 
managing costs and receiving services required to comply with the CAT 
NMS Plan, taking into consideration a variety of factors, including the 
services to be provided and market rates for similar types of activity, 
were reasonable and appropriate.\143\ The services performed by 
Kingland for each period and the costs for each period are described 
above.\144\
---------------------------------------------------------------------------

    \142\ Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan.
    \143\ See Items II.A.1.(2)(B)(i)(c), II.A.1.(2)(B)(ii)(c), 
II.A.1(2)(B)(iii)(c) and II.A.1(2)(B)(iv)(c) above.
    \144\ See supra note 142.
---------------------------------------------------------------------------

(iv) Technology: Change Request Fees
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to change request fees as a part 
of Historical CAT Assessments.\145\ CAT LLC determined that the costs 
related to change request fees described in this filing are reasonable 
and should be included as a part of Historical CAT Costs 1. It is 
common practice to utilize a change request process to address evolving 
needs in technology projects. This is particularly true for a project 
like CAT that is the first of its kind, both in substance and in scale. 
The substance and costs of each of the change requests are evaluated by 
the Operating Committee, and approved in accordance with the 
requirements for Operating Committee meetings. In each case, CAT LLC 
determined that the change requests were necessary to implement the 
CAT. As described above, the change requests cover various technology 
changes, including, for example, changes related to CAT reporting, data 
feeds and exchange functionality. CAT LLC also determined that the 
costs for each change request were appropriate for the relevant 
technology change. A description of the change requests for each FAM 
Period and their total costs are described above.\146\ As noted above, 
the total costs for change requests through FAM Period 3 represent a 
small percentage of Historical CAT Costs 1--that is, 0.25% of 
Historical CAT Costs 1.
---------------------------------------------------------------------------

    \145\ Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan.
    \146\ See Items II.A.1(2)(B)(i)(d), II.A.1.(2)(B)(ii)(d), 
II.A.1(2)(B)(iii)(d) and II.A.1.(2)(B)(iv)(d) above.
---------------------------------------------------------------------------

(v) Capitalized Developed Technology Costs
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to capitalized developed 
technology costs as a part of Historical CAT Assessments.\147\ 
Capitalized developed technology costs include costs related to certain 
development costs, costs related to certain modifications, upgrades and 
other changes to the CAT, CAIS implementation fees and license fees. 
The amount and type of costs for each period are described in more 
detail above.\148\ CAT LLC determined that these costs are reasonable 
and should be included as a part of Historical CAT Costs 1.
---------------------------------------------------------------------------

    \147\ Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan.
    \148\ See Items II.A.1.(2)(B)(i)(e), II.A.1.(2)(B)(ii)(e), 
II.A.1(2)(B)(iii)(e) and II.A.1.(2)(B)(iv)(e) above.
---------------------------------------------------------------------------

    These costs involve the activity of both the Initial Plan Processor 
and FCAT, as the successor Plan Processor.\149\ With regard to the 
Initial Plan Processor, the Participants utilized an RFP to seek 
proposals to build and operate the CAT, receiving a number of proposals 
in response to the RFP. The Participants carefully reviewed and 
considered each of the proposals, including holding in-person meetings 
with each of the Bidders. After several rounds of review, the 
Participants selected the Initial Plan Processor in accordance with the 
CAT NMS Plan. CAT LLC entered into an agreement with the Initial Plan 
Processor in which CAT LLC would pay the Initial Plan Processor a 
negotiated, fixed price fee.\150\ In addition, as described above, CAT 
LLC determined that is [sic] was appropriate to enter into an agreement 
with FCAT as the successor Plan Processor.\151\
---------------------------------------------------------------------------

    \149\ See supra note 147.
    \150\ See Item II.A.1.(2)(B)(i)(e) above.
    \151\ See Item II.A.1.(2)(B)(i)(b) above.
---------------------------------------------------------------------------

(vi) Legal
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to legal fees as a part of 
Historical CAT Assessments.\152\ CAT LLC determined that the legal 
costs described in this filing are reasonable and should be included as 
a part of Historical CAT Costs 1. Given the unique nature of the CAT, 
the number of parties involved with the CAT (including, for example, 
the SEC, Participants, Industry Members, and vendors) and the many 
regulatory issues associated with the CAT, the scope of the necessary 
legal services are substantial. CAT LLC determined that the scope of 
the legal services is necessary to implement and maintain the CAT and 
that the legal rates reflect the specialized services necessary for 
such a project. When hiring each law firm for a CAT project, CAT LLC 
interviewed multiple firms, and determined to hire each firm based on a 
variety of factors, including the relevant expertise and fees. In each 
case, CAT LLC determined that the hourly fee rates were in line with 
market rates for the specialized legal expertise. In addition, CAT LLC 
determined that the total costs incurred for each CAT project were 
appropriate given the breadth of services provided. The services 
performed by each law firm for each period and the costs related to 
such services are described above.\153\
---------------------------------------------------------------------------

    \152\ Section 11.3(b)(iii)(B)(II)(B)(2) of the CAT NMS Plan.
    \153\ See Items II.A.1.(2)(B)(i)(f), II.A.1.(2)(B)(ii)(f), 
II.A.1.(2)(B)(iii)(f) and II.A.1.(2)(B)(iv)(f) above.
---------------------------------------------------------------------------

(vii) Consulting
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover consulting costs as a part of Historical CAT 
Assessments.\154\ CAT LLC determined that the consulting costs 
described in this filing are reasonable and should be included as a

[[Page 10883]]

part of Historical CAT Costs 1. Because there are no CAT employees 
\155\ and because of the significant number of issues associated with 
the CAT, the consultants provided assistance in the management of 
various CAT matters and the processes related to such matters.\156\ CAT 
LLC considered a variety of factors in choosing a consulting firm and 
determined to select Deloitte after an interview process.\157\ CAT LLC 
also determined that the consulting services were provided at 
reasonable market rates, as the fees were negotiated annually and 
comparable to the rates charged by other consulting firms for similar 
work.\158\ Moreover, the total costs for such consulting services were 
appropriate in light of the breadth of services provided by Deloitte. 
The services performed by Deloitte and the costs related to such 
services are described above.\159\
---------------------------------------------------------------------------

    \154\ Section 11.3(b)(iii)(B)(II)(B)(3) of the CAT NMS Plan.
    \155\ As stated in the filing of the proposed CAT NMS Plan, 
``[i]t is the intent of the Participants that the Company have no 
employees.'' See Securities Exchange Act Release No. 77724 (April 
27, 2016), 81 FR 30614, 30621 (May 17, 2016).
    \156\ CAT LLC uses certain third parties to perform tasks that 
may be performed by administrators for other NMS Plans. See, e.g., 
CTA Plan and CQ Plan.
    \157\ See Item II.A.1.(2)(B)(i)(g) above.
    \158\ See Items II.A.1(2)(B)(i)(g), II.A.1.(2)(B)(ii)(g), 
II.A.1.(2)(B)(iii)(g) and II.A.1(2)(B)(iv)(g) above.
    \159\ See supra note 157.
---------------------------------------------------------------------------

(viii) Insurance
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover insurance costs as a part of Historical CAT 
Assessments.\160\ CAT LLC determined that the insurance costs described 
in this filing are reasonable and should be included as a part of 
Historical CAT Costs 1. CAT LLC determined that it is common practice 
to have directors' and officers' liability insurance, and errors and 
omissions liability insurance. CAT LLC further determined that it was 
important to have cyber security insurance given the nature of the CAT, 
and such a decision is consistent with the CAT NMS Plan, which states 
that the cyber incident response plan may include ``[i]nsurance against 
security breaches.'' \161\ In selecting the insurance providers for 
these policies, CAT LLC engaged in an evaluation of alternative 
insurers, including a comparison of the pricing offered by the 
alternative insurers.\162\ Based on this analysis, CAT LLC determined 
that the selected insurance policies provided appropriate coverage at 
reasonable market rates.\163\
---------------------------------------------------------------------------

    \160\ Section 11.3(b)(iii)(B)(II)(B)(4) of the CAT NMS Plan.
    \161\ Section 4.1.5 of Appendix D of the CAT NMS Plan.
    \162\ See Items II.A.1.(2)(B)(i)(h), II.A.1(2)(B)(ii)(h), 
II.A.1.(2)(B)(iii)(h) and II.A.1(2)(B)(iv)(h) above.
    \163\ See supra note 161.
---------------------------------------------------------------------------

(ix) Professional and Administration
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover professional and administration costs as a part 
of Historical CAT Assessments.\164\ CAT LLC determined that the 
professional and administration costs described in this filing are 
reasonable and should be included as a part of Historical CAT Costs 1. 
Because there are no CAT employees, all required accounting, financial, 
tax, cash management and treasury functions for CAT LLC have been 
outsourced at market rates. In addition, the required annual financial 
statement audit of CAT LLC is included in professional and 
administration costs, which costs are also at market rates.
---------------------------------------------------------------------------

    \164\ Section 11.3(b)(iii)(B)(II)(B)(5) of the CAT NMS Plan.
---------------------------------------------------------------------------

    CAT LLC determined to hire a financial advisory firm, Anchin, to 
assist with financial matters for the CAT. CAT LLC interviewed Anchin 
as well as other potential financial advisory firms to assist with the 
CAT project, considering a variety of factors in its analysis, 
including the firm's relevant expertise and fees.\165\ The hourly fee 
rates for this firm were in line with market rates for the financial 
advisory services provided.\166\ Moreover, the total costs for such 
financial advisory services was appropriate in light of the breadth of 
services provided by Anchin. The services performed by Anchin and the 
costs related to such services are described above.\167\
---------------------------------------------------------------------------

    \165\ See Item II.A.1.(2)(B)(i)(i) above.
    \166\ See Items II.A.1(2)(B)(i)(i), II.A.1(2)(B)(ii)(i), 
II.A.1.(2)(B)(iii)(i) and II.A.1.(2)(B)(iv)(i) above.
    \167\ See supra note 165.
---------------------------------------------------------------------------

    CAT LLC also determined to engage an independent accounting firm, 
Grant Thornton, to complete the audit of CAT LLC's financial 
statements, in accordance with the requirements of the CAT NMS Plan. 
CAT LLC interviewed this firm as well as another potential accounting 
firm to audit CAT LLC's financial statements, considering a variety of 
factors in its analysis, including the relevant expertise and fees of 
each of the firms. CAT LLC determined that Grant Thornton was well-
qualified for the role given the balance of these considerations.\168\ 
Grant Thornton's fixed fee rate compensation arrangement was reasonable 
and appropriate, and in line with the market rates charged for these 
types of accounting services.\169\ Moreover, the total costs for such 
financial advisory services was appropriate in light of the breadth of 
services provided by Grant Thornton. The services performed by Grant 
Thornton and the costs related to such services are described 
above.\170\
---------------------------------------------------------------------------

    \168\ See Item II.A.1(2)(B)(i)(i) above.
    \169\ See Items II.A.1(2)(B)(i)(i), II.A.1.(2)(B)(ii)(i), 
II.A.1(2)(B)(iii)(i) and II.A.1(2)(B)(iv)(i) above.
    \170\ See supra note 168.
---------------------------------------------------------------------------

    The professional and administrative costs also include costs 
related to the receipt of certain market data from Exegy. After 
performing an analysis of the available market data vendors to confirm 
that the data provided met the SIP Data requirements of the CAT NMS 
Plan and comparing the costs of the vendors providing the required SIP 
Data, CAT LLC determined to purchase market data from Exegy. Exegy 
provided the data elements required by the CAT NMS Plan, and the fees 
were reasonable and in line with market rates for the market data 
received.\171\
---------------------------------------------------------------------------

    \171\ See Item II.A.1.(2)(B)(i)(i) above.
---------------------------------------------------------------------------

    The professional and administrative costs also include costs 
related to a third party security assessment of the CAT performed by 
RSM. The assessment was designed to verify and validate the effective 
design, implementation, and operation of the controls specified by NIST 
Special Publication 800-53, Revision 4 and related standards and 
guidelines. Such a security assessment is in line with industry 
practice and important given the data included in the CAT. CAT LLC 
determined to engage RSM to perform the security assessment, after 
considering a variety of factors in its analysis, including the firm's 
relevant expertise and fees. The fees were reasonable and in line with 
market rates for such an assessment.\172\
---------------------------------------------------------------------------

    \172\ See supra note 170.
---------------------------------------------------------------------------

(x) Public Relations Costs
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover public relations costs as a part of Historical 
CAT Assessments.\173\ CAT LLC determined that the public relations 
costs described in this filing are reasonable and should be included as 
a part of Historical CAT Costs 1. CAT LLC determined that the types of 
public relations services utilized were beneficial to the CAT and 
market participants more generally. Public relations services were 
important for various reasons, including monitoring comments made by 
market participants about CAT and understanding issues related to the 
CAT discussed on the

[[Page 10884]]

public record.\174\ By engaging a public relations firm, CAT LLC was 
better positioned to understand and address CAT issues to the benefit 
of all market participants.\175\ Moreover, CAT LLC determined that the 
rates charged for such services were in line with market rates.\176\ As 
noted above, the total public relations costs through FAM Period 3 
represent a small percentage of Historical CAT Costs 1--that is, 0.1% 
of Historical CAT Costs 1.
---------------------------------------------------------------------------

    \173\ Section 11.3(b)(iii)(B)(II)(B)(6) of the CAT NMS Plan.
    \174\ See Item II.A.1(2)(B)(i)(j) above.
    \175\ See Items II.A.1.(2)(B)(i)(j), II.A.1.(2)(B)(ii)(j), 
II.A.1.(2)(B)(iii)(j) and II.A.1.(2)(B)(iv)(j) above.
    \176\ See supra note 174.
---------------------------------------------------------------------------

(B) Total Executed Equivalent Share Volume for the Prior 12 Months
    The total executed equivalent share volume of transactions in 
Eligible Securities for the period from December 2022 through November 
2023 was 3,842,861,347,279.44 executed equivalent shares. CAT LLC 
determined the total executed equivalent share volume for the prior 
twelve months by counting executed equivalent shares in the same manner 
as it will count executed equivalent shares for CAT billing purposes.
(C) Historical Recovery Period 1
    CAT LLC has determined to establish a Historical Recovery Period of 
24 months for Historical CAT Assessment 1 and that such length is 
reasonable. CAT LLC determined that the length of Historical Recovery 
Period 1 appropriately weighs the need for a reasonable Historical Fee 
Rate 1 that spreads the Historical CAT Costs over an appropriate amount 
of time and the need to repay the loans notes to the Participants in a 
timely fashion. CAT LLC determined that 24 months for Historical 
Recovery Period 1 would establish a fee rate that is lower than other 
transaction-based fees, including fees assessed pursuant to Section 
31.\177\ In addition, in establishing a Historical Recovery Period of 
24 months, CAT LLC recognized that the total costs for Historical CAT 
Assessment 1 was less than the total costs for 2022 and 2023, and 
therefore it would be appropriate to recover those costs in two years. 
Furthermore, CAT LLC notes 24 months is appropriate because it is not 
currently proposing that Industry Members be required to pay another 
Historical CAT Assessment or CAT Fee with regard to Prospective CAT 
Costs at the same time.
---------------------------------------------------------------------------

    \177\ As the SEC noted in the CAT Funding Model Approval Order, 
recent Section 31 fees ranged from $0.00009 per share to $0.0004 per 
share. CAT Funding Model Approval Order, 88 FR 62628, 62682.
---------------------------------------------------------------------------

(D) Projected Executed Equivalent Share Volume for Historical Recovery 
Period 1
    CAT LLC has determined to calculate the projected total executed 
equivalent share volume for the 24 months of Historical Recovery Period 
1 by doubling the executed equivalent share volume for the prior 12 
months. CAT LLC determined that such an approach was reasonable as the 
CAT's annual executed equivalent share volume has remained relatively 
constant in recent years. For example, the executed equivalent share 
volume for 2021 was 3,963,697,612,395 executed equivalent shares, and 
the executed equivalent share volume for 2022 was 4,039,821,841,560.31 
executed equivalent shares. Accordingly, the projected total executed 
equivalent share volume for Historical Recovery Period 1 is 
7,685,722,694,558.88 executed equivalent shares.\178\
---------------------------------------------------------------------------

    \178\ This projection was calculated by multiplying 
3,842,861,347,279.44 executed equivalent shares by two.
---------------------------------------------------------------------------

(E) Actual Fee Rate for Historical CAT Assessment 1
(i) Decimal Places
    As noted in the Plan amendment for the CAT Funding Model, as a 
practical matter, the fee filing for a Historical CAT Assessment would 
provide the exact fee per executed equivalent share to be paid for each 
Historical CAT Assessment, by multiplying the Historical Fee Rate by 
one-third and describing the relevant number of decimal places for the 
fee rate.\179\ Accordingly, proposed paragraph (a)(1)(A)(ii) of Rule 
6897 would set forth a fee rate of $0.000015 per executed equivalent 
share. This fee rate is calculated by multiplying Historical Fee Rate 1 
by one-third, and rounding the result to 6 decimal places. CAT LLC 
determined that the use of six decimal places is reasonable as it 
balances the accuracy of the calculation with the potential systems and 
other impracticalities of using additional decimal places in the 
calculation.
---------------------------------------------------------------------------

    \179\ See CAT Funding Model Approval Order, 88 FR 62628, 62658 
n.658.
---------------------------------------------------------------------------

(ii) Reasonable Fee Level
    FINRA believes that imposing Historical CAT Assessment 1 with a fee 
rate of $0.000015 per executed equivalent share is reasonable because 
it provides for a revenue stream for the Company that is aligned with 
Historical CAT Costs 1 and such costs would be spread out over an 
appropriate recovery period, as discussed above. Moreover, FINRA 
believes that the level of the fee rate is reasonable, as it is 
comparable to other transaction-based fees. Indeed, Historical CAT 
Assessment 1 is significantly lower than fees assessed pursuant to 
Section 31 (e.g., $0.0009 per share to 0.0004 per share),\180\ and, as 
a result, the magnitude of Historical CAT Assessment 1 is small, and 
therefore will mitigate any potential adverse economic effects or 
inefficiencies.\181\ Furthermore, the reasonable fee rate for 
Historical CAT Assessment 1 further supports CAT LLC's decision to seek 
to recover all Historical CAT Costs prior to 2022, rather than 
establishing separate Historical CAT Assessments for pre-FAM, FAM 1, 
FAM 2 and FAM 3 costs.
---------------------------------------------------------------------------

    \180\ See CAT Funding Model Approval Order, 88 FR 62628, 62663, 
62682.
    \181\ See supra note 179.
---------------------------------------------------------------------------

(3) Historical CAT Assessment 1 Provides for an Equitable Allocation of 
Fees
    Historical CAT Assessment 1 provides for an equitable allocation of 
fees, as it equitably allocates CAT costs between and among the 
Participants and Industry Members. The SEC approved the CAT Funding 
Model, finding that each aspect of the CAT Funding Model satisfied the 
requirements of the Exchange Act, including the formula for calculating 
Historical CAT Assessments as well as the Industry Members to be 
charged the Historical CAT Assessments.\182\ In approving the CAT 
Funding Model, the SEC stated that ``[t]he Participants have 
sufficiently demonstrated that the proposed allocation of fees is 
reasonable.'' \183\ Accordingly, the CAT Funding Model sets forth the 
requirements for allocating fees related to Historical CAT Costs among 
Participants and Industry Members, and the fee filings for Historical 
CAT Assessments must comply with those requirements.
---------------------------------------------------------------------------

    \182\ See Section 11.3(b) of the CAT NMS Plan.
    \183\ CAT Funding Model Approval Order, 88 FR 62628, 62629.
---------------------------------------------------------------------------

    Historical CAT Assessment 1 provides for an equitable allocation of 
fees as it complies with the requirements regarding the calculation of 
Historical CAT Assessments as set forth in the CAT NMS Plan. For 
example, as described above, the calculation of Historical CAT 
Assessment 1 complies with the formula set forth in Section 11.3(b) of 
the CAT NMS Plan. In addition, Historical CAT Assessment 1 would be 
charged to CEBBs and CEBSs in accordance with Section 11.3(b) of the 
CAT NMS Plan. Furthermore, the Participants would continue to remain 
responsible for their designated share of Past CAT Costs through the 
cancellation of loans made by the Participants to CAT LLC.

[[Page 10885]]

    In addition, as discussed above, each of the inputs into the 
calculation of Historical CAT Assessment 1--Historical CAT Costs 1 
(including Excluded Costs), the count for the executed equivalent share 
volume for the prior 12 months, the length of the Historical Recovery 
Period, and the projected executed equivalent share volume for the 
Historical Recovery Period--are reasonable. Moreover, these inputs lead 
to a reasonable fee rate for Historical CAT Assessment 1 that is lower 
than other fee rates for transaction-based fees. A reasonable fee rate 
allocated in accordance with the requirements of the CAT Funding Model 
provides for an equitable allocation of fees.
(4) Historical CAT Assessment 1 Is Not Unfairly Discriminatory
    Historical CAT Assessment 1 is not an unfairly discriminatory fee. 
The SEC approved the CAT Funding Model, finding that each aspect of the 
CAT Funding Model satisfied the requirements of the Exchange Act. In 
reaching this conclusion, the SEC analyzed the potential effect of 
Historical CAT Assessments calculated pursuant to the CAT Funding Model 
on affected categories of market participants, including Participants 
(including exchanges and FINRA), Industry Members (including 
subcategories of Industry Members, such as alternative trading systems, 
CAT Executing Brokers and market makers), and investors generally, and 
considered market effects related to equities and options, among other 
things. Historical CAT Assessment 1 complies with the requirements 
regarding the calculation of Historical CAT Assessments as set forth in 
the CAT NMS Plan. In addition, as discussed above, each of the inputs 
into the calculation of Historical CAT Assessment 1 and the resulting 
fee rate for Historical CAT Assessment 1 is reasonable. Therefore, 
Historical CAT Assessment 1 does not impose an unfairly discriminatory 
fee on Industry Members.
    Finally, FINRA believes the proposed fees established pursuant to 
the CAT Funding Model promote just and equitable principles of trade, 
and, in general, protect investors and the public interest, and are 
provided in a transparent manner and specificity in Rule 6897. FINRA 
also believes that the proposed fees are reasonable because they would 
provide ease of calculation, ease of billing and other administrative 
functions, and predictability of a fee based on fixed rate per executed 
equivalent share. Such factors are crucial to estimating a reliable 
revenue stream for CAT LLC and for permitting Industry members to 
reasonably predict their payment obligations for budgeting purposes.

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

    Section 15A(b)(9) of the Act \184\ requires that FINRA's rules not 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Exchange Act. FINRA does not 
believe that the proposed rule change will result in any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. FINRA notes that Historical CAT Assessment 1 
implements provisions of the CAT NMS Plan that were approved by the 
Commission and is designed to assist FINRA in meeting its regulatory 
obligations pursuant to the Plan.
---------------------------------------------------------------------------

    \184\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------

    In addition, all Participants (including exchanges and FINRA) are 
proposing to introduce Historical CAT Assessment 1 on behalf of CAT LLC 
to implement the requirements of the CAT NMS Plan. Therefore, this is 
not a competitive fee filing, and, therefore, it does not raise 
competition issues between and among the Participants.
    Furthermore, in approving the CAT Funding Model, the SEC analyzed 
the potential competitive impact of the CAT Funding Model, including 
competitive issues related to market services, trading services and 
regulatory services, efficiency concerns, and capital formation.\185\ 
The SEC also analyzed the potential effect of CAT fees calculated 
pursuant to the CAT Funding Model on affected categories of market 
participants, including Participants (including exchanges and FINRA), 
Industry Members (including subcategories of Industry Members, such as 
alternative trading systems, CAT Executing Brokers and market makers), 
and investors generally, and considered market effects related to 
equities and options, among other things. Based on this analysis, the 
SEC approved the CAT Funding Model as compliant with the Exchange Act. 
Historical CAT Assessment 1 is calculated and implemented in accordance 
with the CAT Funding Model as approved by the SEC.
---------------------------------------------------------------------------

    \185\ See CAT Funding Model Approval Order, 88 FR 62628, 62676-
86.
---------------------------------------------------------------------------

    As discussed above, each of the inputs into the calculation of 
Historical CAT Assessment 1 is reasonable and the resulting fee rate 
for Historical CAT Assessment 1 calculated in accordance with the CAT 
Funding Model is reasonable. Therefore, Historical CAT Assessment 1 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purpose of the Exchange Act.

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

    Written comments were neither solicited nor received.

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\186\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\187\ the Commission summarily may 
temporarily suspend the change in the rules of an SRO if it appears to 
the Commission that such action is necessary or appropriate in the 
public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of the Act. As discussed below, a temporary 
suspension of the proposed rule change is necessary or appropriate to 
allow for additional analysis of the proposed rule change's consistency 
with the Act and the rules thereunder.
---------------------------------------------------------------------------

    \186\ 15 U.S.C. 78s(b)(3)(C).
    \187\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    When SROs file their proposed rule changes with the Commission, 
including fee filings like FINRA's present proposed rule change, they 
are required to provide a statement supporting the proposed rule 
change's basis under the Act and the rules and regulations thereunder 
applicable to the SRO.\188\ The instructions to Form 19b-4, on which 
SROs file their proposed rule changes, specify that such statement 
``should be sufficiently detailed and specific to support a finding 
that the proposed rule change is consistent with [those] 
requirements.'' \189\
---------------------------------------------------------------------------

    \188\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \189\ See id.
---------------------------------------------------------------------------

    Among other things, FINRA's proposed rule change is subject to 
Section 15A of the Act, including Sections 15A(b)(5), (6), and (9), 
which require the rules of a national securities association 
(``association'') to: (1) provide for the equitable allocation of 
reasonable dues, fees and other charges among members and issuers and 
other persons using any facility or system which the association 
operates or

[[Page 10886]]

controls; \190\ (2) be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest, and not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers; \191\ and (3) not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\192\
---------------------------------------------------------------------------

    \190\ 15 U.S.C. 78o-3(b)(5).
    \191\ 15 U.S.C. 78o-3(b)(6).
    \192\ 15 U.S.C. 78o-3(b)(9).
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    The proposed rule change is also subject to the CAT Funding Model 
set forth in the CAT NMS Plan. For example, Section 11.3(b)(iii)(B)(II) 
of the CAT NMS Plan requires that the fee filing provide ``sufficient 
detail to demonstrate that the Historical CAT Costs are reasonable and 
appropriate.'' In addition, Section 11.3(b)(i)(C) of the CAT NMS Plan 
provides that the ``Operating Committee will reasonably determine the 
Historical CAT Costs sought to be recovered by each Historical CAT 
Assessment, where the Historical CAT Costs will be Past CAT Costs minus 
Past CAT Costs reasonably excluded from Historical CAT Costs by the 
Operating Committee'' and Section 11.3(b)(i)(D) of the CAT NMS Plan 
provides that ``[t]he length of the Historical Recovery Period used in 
calculating each Historical Fee Rate will be reasonably established by 
the Operating Committee based upon the amount of the Historical CAT 
Costs to be recovered by the Historical CAT Assessment . . .'' Further, 
Section 11.3(b)(iii)(B)(III) of the CAT NMS Plan provides that ``[n]o 
Participant will make a filing with the SEC pursuant to Section 19(b) 
of the Exchange Act regarding any Historical CAT Assessment until any 
applicable Financial Accountability Milestone described in Section 11.6 
has been satisfied.''
    In temporarily suspending FINRA's fee change, the Commission 
intends to further consider whether the proposed fees are consistent 
with the statutory requirements applicable to a national securities 
association under the Act and with the requirements set forth in the 
CAT Funding Model. Among other things, the Commission will consider 
whether the proposed rule change provides for reasonable fees that 
satisfy the standards under the Act and the rules thereunder.\193\ 
Further, and among other things, the Commission will consider whether 
the proposed rule change, as required by the CAT Funding Model, 
provides ``sufficient detail to demonstrate that the Historical CAT 
Costs are reasonable and appropriate,'' including, but not limited to, 
whether the Operating Committee has ``reasonably determine[d] the 
Historical CAT Costs sought to be recovered by each Historical CAT 
Assessment, where the Historical CAT Costs will be Past CAT Costs minus 
Past CAT Costs reasonably excluded from Historical CAT Costs by the 
Operating Committee'' and whether the ``length of the Historical 
Recovery Period used in calculating each Historical Fee Rate [was] 
reasonably established by the Operating Committee.'' \194\
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    \193\ See 15 U.S.C. 78o-3(b)(5).
    \194\ See CAT Funding Model Approval Order at 62660.
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    Therefore, the Commission finds that it is necessary or appropriate 
in the public interest, for the protection of investors, and otherwise 
in furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.\195\
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    \195\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    In addition to temporarily suspending the proposed rule change, the 
Commission is instituting proceedings pursuant to Sections 19(b)(3)(C) 
\196\ and 19(b)(2)(B) \197\ of the Act to determine whether the 
proposed rule change should be approved or disapproved. Institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, as 
described below, the Commission seeks and encourages interested persons 
to provide comments on the proposed rule change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
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    \196\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \197\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\198\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional consideration and comment on whether FINRA has sufficiently 
demonstrated that the proposed rule change is consistent with Section 
15A(b)(5) \199\ of the Act, and consistent with the CAT Funding Model. 
Section 15A(b)(5) of the Act, among other things, provides that the 
dues, fees, and other charges for an association's members be 
reasonable. And the CAT Funding Model, as noted above, requires, among 
other things, that the proposed rule change provide ``sufficient detail 
to demonstrate that the Historical CAT Costs are reasonable and 
appropriate,'' including whether the Operating Committee has reasonably 
determined the Historical CAT Costs sought to be recovered by each 
Historical CAT Assessment, where the Historical CAT Costs will be Past 
CAT Costs minus Past CAT Costs reasonably excluded from Historical CAT 
Costs by the Operating Committee and whether the length of the 
Historical Recovery Period used in calculating each Historical Fee Rate 
was reasonably established by the Operating Committee.\200\
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    \198\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act 
also provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding, or if the SRO 
consents to the longer period. See id.
    \199\ 15 U.S.C. 78o-3(b)(5).
    \200\ See CAT Funding Model Approval Order at 62660.
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V. Commission's Solicitation of Comments

    The Commission requests that interested persons provide written 
submission of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they have with 
the proposed rule change. In particular, the Commission invites the 
written views of interested persons concerning whether the proposed 
rule change is consistent with Section 15A(b)(5), or any other 
provision of the Act, or the rules and regulations thereunder. Although 
there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
19b-4, any request for an opportunity to make an oral 
presentation.\201\
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    \201\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposed rule change 
by an SRO. See Securities Acts Amendments of 1975, Report of the 
Senate Committee on Banking, Housing and Urban Affairs to Accompany 
S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).

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[[Page 10887]]

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule changes should be 
approved or disapproved by March 5, 2024. Any person who wishes to file 
a rebuttal to any other person's submission must file that rebuttal by 
March 19, 2024.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-FINRA-2024-002 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-FINRA-2024-002. 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 website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website 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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of FINRA. Do not include 
personal identifiable information in submissions; you should submit 
only information that you wish to make available publicly. We may 
redact in part or withhold entirely from publication submitted material 
that is obscene or subject to copyright protection. All submissions 
should refer to file number SR-FINRA-2024-002 and should be submitted 
on or before March 5, 2024. Rebuttal comments should be submitted by 
March 19, 2024.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\202\ that File No. SR-FINRA-2024-002 be, and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \202\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\203\
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    \203\ 17 CFR 200.30-3(a)(12), (57) and (58).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-01194 Filed 2-12-24; 8:45 am]
BILLING CODE 8011-01-P